THE WORLDWIDE GREAT RECESSION that began in 2008 has taken much of the bloom off the European Union rose. These days, the enthusiastic pronouncements of recent years when the European Union was touted as a “bold new experiment in living,” one “leading the way into a new era,” sound premature if not delusional.
Greece’s near-default on its sovereign debt, the humiliating multibillion-dollar International Monetary Fund contribution to the European Union’s near-trillion-dollar bailout fund, and the looming similar economic crises threatening other EU states like Ireland, Spain, and Portugal have laid bare the contradictions long underlying the EU economic project of greater integration through a common currency and centralized policies, putting at risk its very existence. This economic failure complements the European Union’s unmet geopolitical ambitions. Given its limited military capabilities, the European Union has been unable to project global power and fulfill its promise to be an important “pole” in the “multipolar” world that was presumably created by the collapse of the Soviet Union.
Yet despite these failures of the EU project—greater prosperity, peace, and international influence through increased economic and political unification—many liberals in America continue to pursue policies, both domestic and foreign, that are moving the United States closer to the EU paradigm. Indeed, many on the Left approve of the European model as something to emulate. Partly, this reflects the place Europe has traditionally held in the imagination of some Americans. Like the Yankee ingénues in a Henry James novel, they have admired the Old World of sophistication, culture, and civilization that contrasts with the New World of crude, go-getting, frontier brashness. But these days, this admiration more fundamentally reflects the belief that Europe provides a more humane and sophisticated set of social and political values.
The “Europeanization” of America has intensified under the Obama Administration. Actions like the quasi-nationalization of General Motors and the increased government regulation of the finance industry have intensified state control of the economy. Likewise, the recently passed health care legislation moves the country closer to the EU social welfare model in which the state attempts not just to insulate its citizens from the tragic contingencies of existence, but also to provide them with leisure, comfort, and protection against the consequences of their own bad choices.
In foreign policy as well, President Obama has embraced the EU “postmodern” view of interstate relations, which is distrustful of military force and looks instead to diplomacy, multilateralism, and transnational institutions to create global order. Barack Obama explicitly campaigned on the need “to reinvigorate American diplomacy,” as he put it in a Foreign Affairs article, and “to rebuild the alliances, partnerships, and institutions necessary to confront common threats and enhance common security.” Hence, as President, he has apologized abroad for the alleged militarist and unilateralist sins committed by his “cowboy” predecessor and has extended his hand repeatedly—and so far fruitlessly—to the mullahs in Iran in order to prevent them from developing nuclear weapons.
In this article, I hope to dispel the illusions of those who have fallen for the European temptation by highlighting the failure of the EU project. The EU project suffers from several problems: economic sclerosis, unaffordable entitlements, demographic collapse, and a large unassimilated Muslim population. In addition, the EU reliance on “soft power” on the international stage has been a failure.
The Failure of the “EUtopian” Project
Economic Sclerosis. The greater integration of the 27 EU member states’ economies, most visibly evident in the common currency used by the 17 states of the eurozone, has not overcome the impediments to economic growth and development caused by dirigiste government policies.
Though still collectively an economic powerhouse, Europe’s economies for the past two decades have been troubled by low rates of growth, chronic unemployment, and economic sclerosis compared to the U.S. economy. Whether the issue is per capita gross domestic product, productivity, high tax burdens, percentage of working-age citizens employed, research and development, worker-friendly requirements for wages and benefits, impediments to entrepreneurs, early generous retirement, or regulations concerning hiring and firing, EU policies impede economic growth and vitality and leave Europe less competitive and resilient than the more dynamic economies of the United States and China.
It is no surprise that the EU states most in economic danger—Greece, Portugal, and Spain—are ranked at the bottom of the World Bank’s “Ease of Doing Business” survey of 27 Western economies. (The United States ranks second.) The comparative impact of the current global recession illustrates this disparity: While the eurozone GDP declined 4.2 percent in 2009, U.S. GDP went down 2.6 percent. Nor has the European Union’s economic recovery kept pace with that of the United States: GDP in the European Union increased 1.8 percent in 2010, while GDP in the United States increased 2.9 percent.
Unaffordable Entitlements. An important factor in retarding the EU economies is the expensive social welfare entitlements enjoyed by Europeans. While the U.S. federal and state governments spend roughly 18 percent of GDP on pensions, welfare, and health care costs, the European Union spends nearly 29 percent. The list of entitlements seems endless: unemployment benefits, welfare payments, pensions, paid maternity leaves, child-care subsidies, free university education, expansive sick leave, restricted working hours, generous paid vacation and holiday leave, and government-provided health care. As EU champion T. R. Reid puts it, falling into the EU government “safety net” is “like falling into a large, soft bed with a down comforter for protection against the cold and a matron standing by with a warm cup of tea to soothe discomfort.”
As desirable as these boons may be, they all cost money and depend on an expanding economy that creates jobs and increases tax revenues. As we currently see in Greece, a sluggish economy has the opposite effect, constricting the funds available for welfare spending. At the same time, social spending continues to increase as the demand for more entitlements grows and an aging, longer-living population stresses budgets further. Given that by 2050 the EU economies will have a mere two workers for every retiree, the EU social welfare paradise is heading for bankruptcy.
Demographic Collapse. These economic woes are worsened by the precipitous demographic decline affecting the EU nations. For a people to maintain their population, they need a fertility rate of 2.1 children per woman. The European Union currently has a fertility rate of 1.5. If these rates continue, by 2050, the European Union will have 7 million fewer people, a loss similar to the effects of plagues, wars, and famines. The impact on the economy will be devastating, as the working-age population will fall by 48 million people while the number of retirees will rise by 58 million. As economist Guillermo de la Dehesa writes:
[T]his demographic shift could be very severe for the EU’s future growth. … A graying population means a less active population, less entrepreneurship, less innovation, higher and probably unsustainable public expenditures, all of which will result in lower growth.
The most important resource for modern free-market economies is the people who think up new products and services, creating jobs for other people, and generating tax revenues. Broader malign effects on the wider culture attend this demographic decline, as childless people find it easier to care more about their own private carpe diem pleasures and dolce vita lifestyle than they care about the larger society and the future vitality of its ideals and principles. They also become less willing to spend the money and make the sacrifices necessary to defend their countries and their values from attack.
EUrabia. This last concern is particularly troublesome in terms of the next problem afflicting the EU paradigm: Muslim immigration. At least 20 million Muslim immigrants live in Europe. At first, these immigrants came as workers, their numbers swelling due to “family reunification programs” and lax “asylum” policies. Once arrived, they have been left unassimilated into the cultures of their host countries and shut out of the job market because of restrictive employment regulations. At the same time, they have been able to enjoy lavish social welfare entitlements: The four Muslims who perpetrated the London bombings in 2005 had received half a million pounds of social welfare money.
Worse yet, fashionable multicultural fantasies about the non-Western “Other” victimized by past European sins such as colonialism and imperialism have left many Europeans incapable of demanding fidelity to Western political ideals and social mores, all the while eager to appease and enable Muslim immigrant violence and other social pathologies even at the expense of cherished Western values such as free speech or women’s rights.
Hence the creation of the new thought crime “Islamophobia,” used to silence anyone who criticizes Islam. The Italian journalist Oriana Fallaci was charged with “defaming Islam” in her two books defending Western values against Islamic intolerance, and Dutch Member of Parliament Geert Wilders was put on trial for his outspoken defense of Western values and criticisms of Islam’s theologically justified violence in his short film Fitna.
Equally effective at enforcing appeasement has been the fear of Muslim violence. After the 2006 global Muslim riots and killings over some cartoons of Mohammed published by a Danish newspaper, rather than defend the core value of free speech, the European Union instead proposed a “media code” to regulate speech about religion. EU Justice Minister Franco Frattini assured the Muslim world that “we are aware of the consequences of exercising the right of free expression” and that “we can and we are ready to self-regulate that right,” frankly admitting that fear of violent “consequences” would lead to restrictions on free speech.
The predictable result of this combination of appeasement and neglect has been the creation of a sullen, alienated population overrepresented in criminal behavior, prison populations, and welfare rolls. These underemployed and unassimilated Muslims thus become vulnerable to the Islamist doctrine that a return to the purity of the faith and the practice of jihad against the infidel will heal their alienation.
Given that they are confident in the righteousness and superiority of their faith, and moreover are reproducing at a higher rate than their dwindling and aging European hosts, the increasing numbers of Muslim immigrants presage serious social and political problems, from increased terrorist attacks like the London and Madrid bombings to growing immigrant enclaves such as the banlieues (suburbs) ringing Paris that exclude European political and social ideals such as democracy, human rights, and secularism and replace them with Islamic Sharia law. Whether Europe responds to these challenges with further appeasement and erosion of core political values or with a xenophobic or even neo-fascist backlash, the problem is unlikely to be solved without profound social and political dislocations.
The Failure of Soft Power and Internationalism. Finally, the EU vision of relying on soft power rather than military force to defuse conflict and create global order, peace, and prosperity has failed at the grandiose ambition that in a “multipolar” world, “one of these essential poles will be Europe,” as French President Jacques Chirac put it in 1995. Oxford University’s Kalypso Nicolaides defines this “postmodern” foreign policy as one that requires nations to surrender some of their sovereignty to international organizations that presumably enforce common values and serve common interests. This “security community” will rely on “civilian forms of influence and action” over military force and will attempt to create “tolerance between states” and “move beyond the relationships of dominance and exploitation with the rest of the world.”
This ideal assumes that such global “norms” even exist—a proposition that is hard to square with the multiplicity of cultural goods evident across the globe. Yet just on the basis of past performance, the international laws and covenants, institutions like the various “world courts,” and transnational organizations like the European Union itself or the United Nations, all of which embody this utopian goal, have done little to prevent the slaughter of millions of people in civil wars, interstate conflicts, genocide, and ethnic cleansing in places like Bosnia, Kosovo, Chechnya, Sri Lanka, Kashmir, Somalia, Lebanon, Darfur, Congo, or Rwanda, to name just a few.
The fact remains that creating global order and stopping violators of the peace requires the ability to project lethal military power. Yet Europe’s failure in the 1990s to stop the genocide, ethnic cleansing, massacres, and torture next door in the Balkans, and the humiliation of relying on the military power of the United States to do so, exposed the truth that, even collectively, the EU nations are “military pygmies,” as one-time NATO Secretary-General Lord Robertson put it. Thus, for all their vaunted soft power, the Europeans are limited in their geopolitical reach.
Moreover, this pacifism disguised as a preference for soft power is possible only because the security of the EU nations is guaranteed by the United States, which spends more on defense than the rest of the world put together. This U.S. security umbrella, by freeing European nations from spending on their own militaries, likewise makes more affordable the European Union’s generous social welfare entitlements, as well as maintaining the global order necessary for the functioning of a globalized economy.
For example, given that 17 percent of Europe’s oil is imported from the Middle East, most of it through the Strait of Hormuz, the EU economies depend on U.S. military power in the Mediterranean and the Persian Gulf to keep the oil flowing. As Robert Kagan has written, a globalized economy of “saloon keepers” needs a “sheriff” to “enforce some peace and justice in what Americans see as a lawless world where outlaws need to be deterred or destroyed, often through the muzzle of a gun.”
Merely on practical grounds, then, the EU project has so far not succeeded in achieving its aims and thus is a dubious model for the United States. Yet all political policy reflects a philosophical vision, a set of notions about human nature, human motivation, and the human good. At this level as well, many of the ideas underlying the EU vision are contrary to those that animated the American Founding.
The EU’s Progressive Principles
The philosophical ideas of the European Union reflect the continental Enlightenment notion that a universal, essentially rational human nature is progressing away from the irrational superstitions and traditions such as religion that in the past defined and disordered human life and society. This progress has been spurred by the growth of knowledge which has created the “human sciences” such as economics, psychology, and sociology. These “sciences” in turn generate techniques for reorganizing and improving social, political, and economic institutions in order to create peace, equality, and justice and to liberate people from traditional superstitions so that they can recognize and act upon their own best interests and achieve happiness.
This vision creates what French political philosopher Chantal Delsol calls “techno-politics”—top-down government by technical elites who craft policies that intervene in society and the economy in order to mitigate the harsh inequalities of free-market capitalism through government regulations and welfare entitlements. The goal will be to lessen and eventually eliminate the irrational nationalist or religious prejudices and intolerance that foment social disorder and injustice. Hence the intrusive and extensive economic regulations of the European Union; the generous social welfare benefits now redefined as “rights” by the EU’s Charter of Fundamental Rights; the legally codified and enforced demands for tolerance, respect, and inclusion; and the animus against Christianity notoriously evident in the refusal to acknowledge Europe’s Christian roots in the EU Constitution.
These radical Enlightenment ideals underlying the European Union’s domestic policies inform its foreign affairs behavior as well. Given the universal progress from irrational restraints on people to rational techniques for managing and improving human life, there is a global “harmony of interests” because all peoples desire the same ends as Westerners: peace, prosperity, and political freedom. Once educated to these true interests, all peoples will realize that these goods can best be obtained not by force and the pursuit of parochial nationalist interests, but by networks of interstate agreements that adjudicate disputes rationally and subject the behavior of nations to clearly defined international rules and protocols enforced by transnational organizations, allowing peace and prosperity to flourish. Then war will give way to diplomacy: rational discussion, negotiation, respect and tolerance for the other side’s demands, and a mutual desire to adjudicate grievances without the destruction and suffering that attend the use of force—what the Europeans call “soft power.”
Just taken on their own terms, these assumptions about human nature and progress are dubious at best and hard to support by the empirical evidence of history. Despite the astonishing explosion of scientific knowledge over the past two centuries, no laws governing human social, political, and economic behavior akin to the laws of physics or mathematics that can justify the intrusive reorganization of society by elites wielding techniques reflecting those laws have been discovered. Every attempt to do so over the past two centuries has ended in bloody failure and tyranny, for such meddling based on abstract theories founders on the sheer complexity and quirky unpredictability of human nature and its irrational passions and stubborn willfulness.
America’s Founding Principles
All of these utopian ideals are different from those upon which the American order was founded. Of course, the Founders believed in the possibility of political progress, believing, as Alexander Hamilton put it in Federalist No. 1, that “societies of men are really capable … of establishing good government from reflection and choice.” And they understood that such progress might require jettisoning some of the past. Hence, they did not suffer “a blind veneration for antiquity, for custom, or for names, to overrule the suggestions of their own good sense, the knowledge of their own situation, and the lessons of their own experience,” as Madison put it.
Yet these constructive efforts at improvement were based on the given of a human nature permanently subject to destructive passions and selfish interests. Throughout the Federalist, whether the topic is the need for a strong union, the preference for a republic rather than a direct democracy, or the separation of powers, the authors repeatedly emphasize the irrational wellsprings of human behavior.
For example, Hamilton reminds us in Federalist No. 6 that “men are ambitious, vindictive, and rapacious.” In Federalist No. 10, Madison’s famous discussion of factions—groups adverse to the rights of other citizens or to the common good—likewise reflects a sober view of human nature and the power of “opinions” formed by a “fallible” reason and influenced by “passions”: “The latent causes of faction,” Madison summarizes, “are thus sown in the nature of man.” Since human nature cannot be improved beyond such motives that create faction, “relief is only to be sought in the means of controlling its effects.” This control can be achieved, then, not by some scheme to change human nature and engineer a new man, but by a well-constructed republican government in which power is separated among the different branches of government.
Indeed, government itself is necessary precisely because, as Hamilton puts it in Federalist No. 15, “the passions of men will not conform to the dictates of reason and justice, without constraint.” But it is Madison who provided in Federalist No. 51 the most famous expression of this fundamental truth: “But what is government itself but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary.”
Preserving American Exceptionalism
The American ideals of political freedom and autonomy, citizen independence and self-reliance, limited government, religion, patriotism, and nationalist autonomy backed up by vigorous military power comprise American exceptionalism. These ideals that define our nation would have to be weakened or discarded if America were to follow the EU road to utopia.
Regrettably, we have already been travelling down that road for decades. By the early 20th century, the rise of Progressivism had established in the public discourse the doctrine of social, economic, and political change controlled and directed by technical elites. This class, backed by government power, would work to improve and perfect life and solve problems based on what Bradley C. S. Watson describes as a “faith in intelligence and expertise translated into support for a vast state mechanism that would be confidently dedicated to ensuring growth—by means of progressive education, the administrative state, and redistribution of capital.”
The expansion of the federal government that commenced under Franklin Roosevelt’s New Deal, was furthered by Lyndon Johnson’s Great Society programs and has intensified under Barack Obama is continuing this process. The result is increased entitlement spending and government intrusion into the economy, education, and social life. Consequently, the United States is now facing many of the same fiscal problems that afflict Europe, with entitlement spending projected to double by 2050 and public debt slated to rise to 180 percent of GDP by 2035. And let us not forget the erosion of traditional independence and self-reliance, the constriction of freedoms, and the infantilizing of Americans that follow the greater intrusion of government power into daily life and business.
Mr. Thornton is a National Fellow at the Hoover Institution and the author of Decline and Fall: Europe’s Slow-Motion Suicide (Encounter Books, 2007), from which this essay is adapted. A longer version of this essay is also available at www.heritage.org/research/reports/2011/03/america-the-delusional-overcoming-our-european-temptation.
FINANCIAL TRANSPARENCY HAS ASSUMED a prominent role in most sectors of the economy. Corporations are required by Sarbanes-Oxley to provide extensive disclosure of their financial activities. Candidates for political office have to adhere to Federal Election Commission regulations. The Internal Revenue Service collects taxes from citizens and ensures compliance through audits.
The union sector, however, with assets of over $10 billion, was, until 2005, mostly exempt from any regulation that required detailed financial disclosure.
The first major piece of legislation designed to compel union financial disclosure was the Labor Management Reporting and Disclosure Act, better known as the Landrum-Griffin Act. The law was passed in 1959 and followed more than two years of Senate investigations into widespread corruption in the organized labor movement, particularly in major unions such as the International Brotherhood of Teamsters, United Mine Workers, and International Longshoremen Workers Union. Organized labor’s behavior at the time was so egregious that the bill gained overwhelming bipartisan support, passing the Senate by a vote of 95-2 and the House of Representatives by a 352-52 margin. Few pieces of labor law reform since Landrum-Griffin have received this level of approval.
The Landrum-Griffin Act was written with the intention of requiring greater union transparency. While labor unions were compelled to file financial reports before the Act’s passage, these reports were not made public and were of virtually no help in holding unions accountable to their members. Even Robert Kennedy, who was involved in the Senate investigations of organized labor, acknowledged that the union financial forms then in place were ineffective.
The first substantive regulations on union financial reporting requirements were issued by Secretary of Labor James Mitchell in 1960. These required unions with $20,000 or more in total annual receipts to submit to the Department of Labor their financial information on a “Form LM-2.” The filing threshold was gradually raised until it reached $200,000 in 1994.
The great hope at the time of passage of the Landrum-Griffin Act was that the new financial disclosures would empower rank-and-file union members and ensure that unions were more accountable to their membership, and, as a result, less corrupt overall.
Unfortunately, the type of reforms the law envisioned never fully materialized. There were several reasons for this failure.
First, some unions attempted to make sure that the financial information contained in the forms was never disclosed to the rank and file, much less widely disseminated to members. Some even took steps to ensure that their dues-paying members did not have proper notification about the existence of the LM-2 data. For example, the International Association of Machinists was involved in litigation for years over this issue. The union claimed that a one-time notification issued in 1959 was sufficient to comply with the Landrum-Griffin Act’s notification requirements. The U.S. Court of Appeals for the Fourth Circuit eventually disagreed with this reasoning, but these types of roadblocks were commonplace in the years after the law’s passage.
Furthermore, the old regulations and LM-2 forms did not require detailed information that properly reflected the complex financial world of today’s labor unions. Large amounts of funds—in the millions of dollars—were reported by unions on the forms as “other,” “expenses,” or “miscellaneous.” Information was deliberately vague and could be grouped into broad categories, allowing labor unions to escape the type of scrutiny faced by corporate and other non-profit entities.
In 2003, Secretary of Labor Elaine Chao promulgated new rules requiring more detailed LM-2 forms, saying:
The forms no longer serve their underlying purpose because they fail to provide union members with sufficient information to reasonably disclose to them the financial condition and operation[s] of labor organizations … . [I]t is impossible for union members to evaluate in any meaningful way the operations or management of their unions when the financial disclosure reports filed … simply report large expenditures for broad, general categories. The large dollar amount and vague description of such entries make it essentially impossible for anyone to determine with any degree of specificity what union operations their dues are spent on, without which the purposes of the [Landrum-Griffin Act] are not met.
In order to solve this problem, the Department of Labor proposed new rules to update the Form LM-2, including a requirement that all unions with receipts in excess of $200,000 file their disclosure forms electronically.
Additionally, the new rules required eligible unions to disclose detailed membership status information on the form’s Schedule 13. Historically, unions would report inconsistent numbers for their membership totals and not differentiate between the many different classes of union members such as active, associate, retired, agency-fee payers, etc. The new class system mandated by Schedule 13 allowed the rank and file to discern the exact composition of their union.
Arguably the most important addition to the new LM-2 forms was the requirement that unions detail specific expenditures in more narrow categories than before on Schedules 14-19 of the LM-2 forms. Schedules 14-19 demand itemized expenses for all expenditures over $5,000 in these schedules and categories. Specifically, other receipts were detailed in Schedule 14, representational activities in Schedule 15, political activities and lobbying in Schedule 16, contributions, gifts, and grants in Schedule 17, general overhead in Schedule 18, and union administration in Schedule 19. These new forms were displayed on the Department of Labor Web site, thus allowing any rank and file union member instant access to the data in the new forms and compelling union leaders to list both their salaries and the percentage of time spent on various union-related activities.
Union officers are required to complete the LM-30 form, which requires union officials to disclose conflicts of interest. If officials received things of value for any reason other than performing their regular duties, then they would likely need to disclose the transaction and its reason.
Under the 2007 reform of the Form LM-30, stewards receiving leave from an employer to work on union matters—known as “union leave” or “no docking” policy—was reportable if it exceeded 250 hours a year.
The AFL-CIO protested every change, publicly claiming that the LM-2 reforms would impose an impossible burden on the unions. Amongst these burdens, the AFL-CIO cited the supposedly high cost of accounting that would be associated with tracking expenditures as well as an inability to comply with the Department’s requested time frame for the new forms. In their legal pleadings against the new rules, the federation also disputed Secretary Chao’s authority to issue the broad new regulations that she proposed.
The labor federation won a minor court battle in January 2004 when U.S. District Court Judge Gladys Kessler ruled that the Department of Labor had to give unions more time to comply with the new rules. But Judge Kessler, a Clinton appointee to the bench, eventually said that the new rules themselves were appropriate and legal. The AFL-CIO was still not satisfied and appealed Judge Kessler’s decision. In May 2005, the U.S. District Court for the District of Columbia upheld the new rules in a 2-1 decision.
After three years of data collection with the new LM-2 forms, the Labor Department decided to expand the form to make it easier for union members to identify corrupt behavior.
In January 2009, the Labor Department issued revised and expanded LM-2 forms. These new forms required additional information such as verification that sales and purchases of assets were performed without conflicts of interest; the value of benefits and travel reimbursements paid to union officers and employees; and additional details on funds received.
These expenses are listed on Internal Revenue Service tax forms, but not on financial disclosure forms filed with the Labor Department. IRS documents are laborious to find, whereas Labor Department disclosure forms are available electronically.
In addition to the LM-2 form, unions were required for the first time to file a disclosure form, known as T-1, about the finances of union-managed trusts, such as credit unions, strike funds, pension and welfare plans, and building funds. The reason for these requirements was that many unions had created networks of trusts that allowed them to shield massive financial transactions from their members, analogous to the recent abuses involving “off the books” accounting by some corporations.
All these regulations were of great value to union members. Just as shareholders can see how corporations spend their money, so union members could see how their union dues were being spent.
Backsliding on Transparency
But now the Obama Labor Department is rolling back the financial disclosure rules. It does not want unions to file the enhanced LM-2 forms, the new LM-30 forms, and the T-1 form. In the Federal Register of October 13, 2009, the Department states that “comments received indicate that the Department may have underestimated the increased burden that the rule would place on reporting organizations.”
It also cited an unnamed union: “The union also asserted that detailed reporting requirements are unnecessary because union members are sophisticated enough to seek information about union financial matters from their unions, as well as seek publicly available information, such as that provided by the IRS.”
But the whole point of the disclosure requirements is that if unions are misusing workers’ dues, then the union is going to hide it from rank-and-file members. Furthermore, the IRS data to which the union refers, the Form 990s, come out with a two-year delay, are not readily accessible, and disclose payroll and benefits information for only a very limited number of union officials.
The Labor Department provided unions with free software and free training to complete the forms, as well as compliance assistance. In addition, the forms were structured to interface easily with major accounting software. The LM-30 was filed in hard copy, so no new software was needed.
The only reason that completing the forms would be too burdensome is that the organizations do not want to keep track of the expenses. But it is their duty to tell union members where their hard-earned dues are going.
For comparison’s sake, it is worth highlighting the costs for corporations to comply with one section of the Sarbanes-Oxley Act of 2002. Section 404 of the act requires public companies to issue a management report on the effectiveness of companies’ internal controls, and an independent audit report. In 2005, Charles Rivers Associates, an economic consulting firm, estimated that compliance costs averaged $7.8 million in 2004 for the Fortune 1000 companies. Smaller companies had to spend hundreds of thousands of dollars.
If these companies had complained that the compliance costs were too high and that the SEC should rescind the rules, they would have been mocked in the media and the public eye. Yet unions, who were offered free help and software to fill out the forms, receive a sympathetic hearing.
The criticism of the enhanced LM-2, T-1, and LM-30 forms suggests that union financial activity is now an open book. But this is not so. Political activity is not always disclosed. Payments to third parties, often put down as charitable contributions, are in turn used for political activity. Some of this can be observed from the forms, but other activity is still hidden. Some payments are directed to third parties who have conflicts of interest with union officials.
Just as Sarbanes-Oxley sets standards for corporate disclosure so that shareholders have full information, the same protection should be extended to union assets and activity so that union members know that their contributions are being used wisely.
Ms. Furchtgott-Roth is a senior fellow at the Manhattan Institute. This article is adapted from her testimony before the Subcommittee on Health, Employment, Labor, and Pensions of the House Committee on Education and the Workforce, March 31, 2011.
MICHAEL PATRICK LEAHY IS the editor of “Voices of the Tea Party,” a new e-book series from Broadside Books. The series helps Tea Party activists share insights about fighting for liberty at the grass roots level. Leahy has been involved with the Tea Party movement since its beginning. He is one of the co-founders of The Nationwide Tea Party Coalition, and a co-founder of the group Top Conservatives on Twitter. We talked recently with Leahy about the e-book series, grass roots activism, and the Tea Party.
The Insider: Who do you want to read the “Voices of the Tea Party” series?
Michael Patrick Leahy: The series tries to get the voice of the Tea Party out to folks within the Tea Party, but also so that folks who are not familiar with it will have an opportunity to hear what the folks who have organized the Tea Party believe.
TI: Why e-books?
MPL: They are relatively easy to complete and relatively easy to distribute, and you can get across in 7,500 to 10,000 words a key point.
TI: How is the series doing?
MPL: I think we’ve been very pleased with the reception it’s received. The latest e-book in the series is one that I wrote, I, Lightbulb: A Death Row Testimonial. As you probably saw, it has received quite a lot of coverage from thought leaders, especially The Weekly Standard, which had a feature article that talked about the I, Lightbulb e-book.
So from the point of view of getting the message out and having the Tea Party perspective shared among the thought leaders in the conservative movement—and thought leaders in general—I think it’s been very effective. The sales have been modest, but I think that’s pretty much what we expected.
Broadside Books—a new conservative imprint from HarperCollins—is launching several e-book series now. This is just the first of several.
TI: How many titles are in the series now?
MPL: My e-book is the sixth and we have another one coming out in September. Amy Handlin has written an e-book about crony capitalism. That will be coming out in September. Amy Handlin is a professor at Monmouth University in New Jersey, and is a Republican member of the New Jersey General Assembly.
TI: How do you decide what topics to cover? Are you focused on submissions from Tea Party members, or do you solicit books?
MPL: We have a place on the Web site where folks can send us submissions. And we’ve had several authors approach us. Some have been published in the past, and others haven’t. I have also sought out Tea Party activists who I know who have particularly important things to say.
TI: What sets a “Voices of the Tea Party” book apart from a conservative book that might be published by say Regnery or Crown Forum?
MPL: First, we focus on the three core values of fiscal responsibility, constitutionally limited government, and free markets.
Then there is also an activism element to it. The traditional conservative movement that’s been in D.C. has terrific thoughts and ideas but those are more from on high and not necessarily connected with the reality of the grass roots. One of our great titles, for instance, is Lorie Medina’s e-book Community Organizing for Conservatives. That talked about the get-out-the-vote efforts in Texas that were extraordinarily effective in the primaries in 2010.
And so it’s the combination of both the constitutional conservatism as well as the hands-on experience of what happens at the grass roots level that I think is distinctive.
TI: Only three core values? Where does national security fit into the Tea Party framework?
MPL: Let me give you a little background on the history of where the three core values came from.
Everything in the Tea Party movement is a collaborative process. That process started, as you probably know, with the group that I founded, Top Conservatives on Twitter back in November of 2008. Top Conservatives on Twitter preceded the Tea Party movement, but many of the folks that started the Tea Party movement got involved through Top Conservatives on Twitter.
As part of that collaborative process we put a task force together from among the first members of that organization to determine what our mission statement was. And we started with the mission statement of The Heritage Foundation. There are actually five elements in the Heritage statement. One was about national defense. Another was traditional values.
We had a very elaborate process where we looked at those. The reason we didn’t add traditional values is we couldn’t quite come to consensus. So we figured it’s best to save the republic first and then let the traditionalists and non-traditionalists duke it out over social issues after that.
And with regards to defense, our conclusion was that defense is simply an outgrowth of constitutionally limited government. Providing for the defense is one of the most important constitutional obligations.
TI: What are some of the best lessons readers will learn from the “Voices of the Tea Party” series? Can you give us a sample of the wisdom you are offering?
MPL: I would go back to Lorie Medina’s book, which basically is a nuts-and-bolts approach to how to get things done. Activism is more than just having the right answer. It’s understanding how to interact with people in the real world.
And there are really great hands-on examples of how Lorie Medina was able to do that in Texas. Her book really has become almost a classic handbook, if you will, for grassroots Tea Parties around the country. I talk to folks all the time who are downloading it, reading it, and deploying some of those elements in there through local Tea Parties.
Another practical application: Bill Hennessy from the St. Louis Tea Party wrote a book called Weaving the Roots, which talked about some basic principles of how to use social media—an excellent discussion of the basic elements of using Facebook and Twitter, the dos and don’ts.
TI: From where did the title of your book, I, Lightbulb, come?
MPL: You are probably familiar with the classic essay written in the late 1950s by Leonard E. Read, the founder of the Foundation for Economic Education. He wrote a classic: I, Pencil.
It’s actually only about 2,500 words, but in that he explained how the free market combines the various forces—the invisible hand if you will—of thousands of folks to create a very effective and not particularly costly pencil that does the job well.
And so when the ridiculous light bulb ban was passed, it struck me that the light bulb was a product that had been treated very poorly. In contrast to the free markets of the late 1950s, here we had big government, regulatory, crony capitalism at work. And the outcomes are very, very negative for the average consumer.
TI: What are some of those negative consequences?
MPL: For the consumer, the negative consequences are higher prices, less innovation, less responsive service, and limitations on economic choices. For small businesses and entrepreneurs, it’s the loss of the opportunity to compete fairly.
TI: What would you most like folks who are not Tea Party members to understand about the Tea Party?
MPL: We are committed to traditional, constitutional American values. I talk about this idea in my upcoming book, Covenant of Liberty: The Ideological Origins of the Tea Party Movement. The Constitution, as we see it, is a secular covenant. It’s a covenant between the states, the federal government, and the voters that outlines the nature of the relationship. And the promises of that secular covenant have been broken repeatedly by the federal government, and we are simply trying to restore that secular covenant.
TI: Where do you think the federal government went off the track? Was it 2008? 2001? 1996? 1965? Surely we didn’t get here overnight, right?
MPL: The federal government began really going off track during World War I, when the Wilson Administration used the excuse of the wartime emergency to insert itself into virtually every aspect of American economic life. Herbert Hoover was Wilson’s Food Administrator, and he pushed an arbitrary set of limitations upon pricing and distribution decisions made by farmers and food retailers. Bernard Baruch and his aide Hugh S. Johnson wreaked havoc on American industry through the War Industries Board and its innumerable rules and regulations; and Harry Garfield, the Federal Fuel Administrator, shut down every manufacturing plant east of the Mississippi for five days, with disastrous effect.
The bureaucrats who ran these war agencies for Wilson got a taste of power during the military emergency of World War I and they liked it. So when the Depression came about a little more than a decade later, they were eager to re-assert their “emergency powers,” first under the programs of the Hoover administration, then even more dramatically as the bureaucratic kingpins of Roosevelt’s New Deal. It’s been downhill ever since.
TI: A few years back you wrote a list of “Rules for Conservative Radicals.” Care to identify a few of those that are most pertinent for conservatives today?
MPL: There’s probably a new rule, which is: If you are working with somebody who shares the three core values of the movement, it’s better to forgive them if you are having some kind of conflict and try to focus on your shared values and purposes and keep the ball moving forward. There’s all sorts of human interaction and people don’t always get along. Just because somebody does something in a certain way that you don’t agree with, don’t dwell on that. Get past it and focus on common objectives.
TI: Are there things that the think tanks—whether state-based or national organizations like The Heritage Foundation—and the activists need to do to work better with each other?
MPL: The think tanks—and especially the Heritage Foundation—have been very helpful in providing intellectual firepower on policy issues to support grass roots activists. But I think the relationship between think tanks and activists has only scratched the surface of its potential.
To my mind, the think tanks really need to step up their game now. The nature of the relationship needs to change, in my opinion. Remember, the grass roots activists who comprise the Tea Party movement have virtually no money. Christina Botteri, a Tea Party activist from the beginning, has said that we’ve financed the Tea Party movement with the spare change we’ve found in the couch. She’s quite right.
I would like to see all of the think tanks spend more on grassroots activists by reaching out much more extensively to support and engage with them. Fly them in to Washington and give them two-day policy seminars. Go out across the country and hold on-site seminars. Provide more conference call experts. The Heritage Foundation did that a lot during December 2008 with the conference calls we set up on the auto bailout at Top Conservatives on Twitter. The interaction between the activists and the policy experts was energizing for both sides. Heritage helped coordinate those calls, and I think you’d agree that those first calls were very significant in setting the stage for what became the Tea Party movement two months later.
I would like to see think tank professionals treat the grass roots activists with the same kind of respect they give their other colleagues. After all, it’s really the activists, not the think tankers, who’ve made this dramatic political turnabout of the past few years happen. We need both the policy strengths of the think tanks and the passion and energy of the grass roots activists working in tandem to return our country to the kind of limited constitutional government we all support.
TI: What should be the focus of those working to roll back the size and scope of government?
MPL: Engage. Engage now in your local Tea Party’s get-out-the-vote efforts.
A BOARD IS A GROUP OF PEOPLE CHARGED with the ultimate responsibility for the health, preservation, and progress of an organization. It does not run anything. It works with the people who do.
A board’s principal obligation is to serve the organization’s cause, its donors, and its recipients. To carry out its obligation, the board receives and digests information. The board observes, evaluates, and consults with the paid professional who runs the organization day to day. The board asks questions in order to understand more fully what is going on in the organization. The board develops an interaction among its members to achieve that wonderful condition known as synergy. And the board makes the most of its individual and group intuitive powers.
In short, a board does anything and everything that is moral and legal to assist the organization. Here are five ideas that will help make your board effective.
1. Keep the Board Informed
The trustees of a nonprofit organization can function well only with full and correct information. Most of the information comes in the form of materials prepared for each board meeting and from the meetings themselves. Detailed information, plus the meeting agenda, should be received by each trustee at least five full working days in advance of the session. There is a distinct tendency of nonprofit organizations to ignore this basic rule and to hand out materials at the meetings themselves. That conduct is both rude and unacceptable.
Information should be sent to the board on the following topics:
Finances. Quarterly financial reports are needed, including investment and endowment portfolio analyses. Monthly statements are more detailed than the board needs. Of course, if the board meets once every two months, use bimonthly financials. Knowledge of the current financial status is especially critical with nonprofit organizations because their purpose is not to produce a profit, so they may pay insufficient attention to finances. Nonprofit organizations can make huge mistakes in money matters unless there is a clear and broad perspective—and oversight—by the board.
The Cause. A nonprofit board should learn new facts or developments about the cause it supports—not just in its own backyard but regionally, nationally, and internationally if its reach is wide.
Recipients. The board needs to know what the recipients of the organization’s money, services, or other largesse really think. Recipients might include symphony or ballet audiences, school children and parents, or people helped by foundation grants. How is this information collected? One family foundation I know is run by a top-flight professional who visits the recipients of its funds and discusses the gifts and their uses, gaining firsthand insight into the people and their points of view. This person travels a lot!
Donors. The board needs to learn about the principal donors to the organization. Some of the trustees should develop personal relationships with major donors, getting to know them face-to-face as human beings.
Management. The board needs to develop knowledge and understanding of the professionals running the operation. What kind of people are they? What motivates them? What do they really think?
Physical Assets. The board should be conversant, in a general way, with the properties and equipment of the organization as well as technologies used.
Insurance. The board should receive a complete insurance report once a year and examine it broadly for an understanding of the coverage and the costs.
Legal Issues. A quick annual review of the legal issues by the organization’s general counsel is a good idea. The general counsel should not be a member of the board, but that individual should frequently be invited to sit at board meetings.
2. Create Committees to Do the Work
Most of the work of big and mature or sophisticated nonprofit boards is performed at the committee level. The reasons for this practice are the time constraints on board meetings, frequently caused by the large size of the board and the need for someone—not the entire board—to bore into enough detail to get the job done.
Some basic committees for boards of almost any size are as follows:
Nominating. The nominating committee is the most important committee because the continuation of the quality of the board is in its hand. Managers of the nonprofit organization are not normally involved in selection of new board members.
The nominating committee must constantly seek out fresh, generally younger, more interested, and interesting board members who will, in turn, attract similar people.
Maintaining the quality of a nonprofit board reminds me of caring for apple trees. You must prune regularly, fertilize (with interest by the existing members), and cultivate the new growth. Three years of neglect on any of these processes and you can lose the fruit-bearing quality of the tree. You get small, gnarled, uninteresting apples.
Executive. The executive committee is empowered to act when the full board cannot. It can also assist in setting the agenda for board meetings to make them more productive. It is most often composed of the board’s current officers.
This committee may not be important for years at a time in a nonprofit organization, but all of a sudden it can become the lifeline to sanity and good judgment in a crisis. Membership on the executive committee reminds me of military service: months and even years of tedium, broken by occasional moments of stark terror.
Development. Show me a nonprofit organization without a development committee to seek funding, and I will show you one without a sense of its own direction. Exceptions include private family foundations, which by design receive all their money from the family, and boards that are publicly funded. The development committee provides leadership for securing financial support for the organization, taking charge of the activities that bring contributions. Every board member should serve on the development committee for at least two years to gain an understanding of what the tough job of fundraising is like.
Finance. Some trustees must pay special attention to the money side of the organization. The functions of the finance committee are clear: oversee and plan the budget, be familiar with the accounting and control systems of the organization, follow financial activities on a regular basis, and keep the board fully informed.
Special. There are a number of committees with names and charges that may relate only to a particular organization and the cause it serves. Examples are buildings and grounds for a school or college, membership for a church or synagogue, and human resources or any other special area that concerns a board. Fit the committees to the size and special functions of your board.
A Final Word. Too many committees, like too many cooks, can spoil things. Create only a few. A trustee should serve on one committee only. That’s the best way; though in rare cases a trustee could take on two committees. Be aware that you can wear out a trustee with too much committee work in addition to board meetings. Please watch out for yourself. Learn to say: “No, thank you.”
3. Choose a Structure that Fits Your Nonprofit
Standing committees are permanent and members are appointed for designated terms. These committees are responsible for a range of issues such as finance, development, and programs. The characteristics of work, wisdom, wealth, and wallop are all important ingredients to ensure a highly functioning board and committee structure. Organizations should be looking for team players, individuals who have intellectual firepower, street smarts, a tolerance for ambiguity, and the courage to ask tough questions, and who delight in the interchange of ideas.
The board committee (often the executive committee) responsible for trustee recruitment is increasingly considered by many organizations to be the most important committee of all. It’s where you want your most experienced, supportive, and respected trustees.
Ad hoc committees and task forces allow the board to focus attention on narrower matters of importance that the full board cannot take the time to address. They have a specific charge from the board or executive committee and sunset when they have completed their work.
The typical board size is 15 to 21. There is a strong argument for a smaller board—six to nine—which allows for more active engagement and greater sense of ownership and accountability for ensuring that the organization achieves its mission and objectives. On a large board, often an executive committee will be appointed and will meet more frequently in between full board meetings.
Boards should engage in a thorough review annually, ensuring that their size, structure and composition are designed to maximize effective governance and transparency.
There is no one size that fits all. The most important point to evaluate is whether the organization has been able to fulfill its goals and expectations and keep the active and passionate engagement of trustees.
4. Deploy Your Assets
Make sure that you as a trustee take the time to think about how your organization can have the biggest impact on achieving the mission. Too often, trustees fail to apply the wisdom, experience, and skill they bring to the board. It works best when the chief executive comes to the board for counsel and advice well before any formal request for board action. This is where trustees and executive staff, working together, can frame the important questions and consider multiple solutions. It’s often the time when the most creative and dynamic thinking takes place.
This way of working is not familiar ground for many chief executives and boards. You will need to discover and practice new ways of working together. Change is rarely comfortable. Stress, ambiguity, disagreement, and resistance are predictable. However, confronting complex institutional challenges can enrich the work of the chief executive and board. In short, the board has greater impact and value when it deploys all its assets—the intellectual, financial, and social—in helping the organization achieve its highest potential.
So, be prepared to get out and stay out of your comfort zone. You’ll find that real benefits occur for the institution.
5. Measure Progress
Establish clear performance indicators, sometimes called dashboards, of success for your chief executive and board linked to your strategic plan. This enables board members to get a snapshot of your organization to see how it’s doing and where the holes might be. Dashboards might include hits on a Web site compared to last year or contributions year-to-date compared with last year at the same time. A single-page dashboard could be included in the board materials prior to every board meeting. Review progress at every meeting. The development of these key indicators will keep you focused on what matters most.
Mr. Golding was a trustee for 10 different nonprofits, including a major symphony orchestra, a small day-care center, a church, two schools, and a big-city library foundation. Mr. Stewart is president and trustee of The Bruce & Jolene McCaw Family Foundation. This article is adapted from Golding and Stewart’s book Inside the Nonprofit Boardroom: What You Need to Know for Satisfaction and Success, published by The Apex Foundation.