1 00:00:00,970 --> 00:00:03,310 The following content is provided under a Creative 2 00:00:03,310 --> 00:00:04,730 Commons license. 3 00:00:04,730 --> 00:00:06,940 Your support will help MIT OpenCourseWare 4 00:00:06,940 --> 00:00:11,030 continue to offer high quality educational resources for free. 5 00:00:11,030 --> 00:00:13,570 To make a donation or to view additional materials 6 00:00:13,570 --> 00:00:17,530 from hundreds of MIT courses, visit MIT OpenCourseWare 7 00:00:17,530 --> 00:00:18,403 at ocw.mit.edu. 8 00:00:22,095 --> 00:00:23,470 FREDERICK SALVUCCI: The last time 9 00:00:23,470 --> 00:00:26,830 we talked a little bit about Baumol's disease 10 00:00:26,830 --> 00:00:36,670 and why it affects products that are not 11 00:00:36,670 --> 00:00:42,770 seeing technological change that saves cost. 12 00:00:42,770 --> 00:00:46,460 And not seeing import substitution 13 00:00:46,460 --> 00:00:49,070 that might reduce cost. 14 00:00:49,070 --> 00:00:53,160 So they tend to grow at faster than the rate of inflation. 15 00:00:53,160 --> 00:00:58,590 And transit is one of those activities. 16 00:00:58,590 --> 00:01:01,740 And what happens is, the public sector 17 00:01:01,740 --> 00:01:06,180 ends up either taking the responsibility 18 00:01:06,180 --> 00:01:09,830 to provide those services, or subsidizes private parties 19 00:01:09,830 --> 00:01:11,590 to provide those services. 20 00:01:11,590 --> 00:01:14,900 Other services will die or there's 21 00:01:14,900 --> 00:01:16,280 some combination of the two. 22 00:01:16,280 --> 00:01:19,010 The services get cut back, and then 23 00:01:19,010 --> 00:01:23,860 some set of services that are viewed as too important 24 00:01:23,860 --> 00:01:28,120 to allow to disappear the government subsidizes for. 25 00:01:33,140 --> 00:01:35,580 what do you do about it? 26 00:01:35,580 --> 00:01:36,080 Yes? 27 00:01:36,080 --> 00:01:38,538 AUDIENCE: Just curious, what are some other things that you 28 00:01:38,538 --> 00:01:40,110 consider subject to this problem, 29 00:01:40,110 --> 00:01:43,590 outside of public transportation [INAUDIBLE] 30 00:01:43,590 --> 00:01:47,090 like emergency medical, like fire. 31 00:01:47,090 --> 00:01:51,410 FREDERICK SALVUCCI: Well certainly fire protection 32 00:01:51,410 --> 00:02:00,250 services, police, teaching, education generally, 33 00:02:00,250 --> 00:02:05,580 the health care. 34 00:02:08,780 --> 00:02:13,760 So what's the cost problem in health care? 35 00:02:13,760 --> 00:02:19,932 No technological change going on in health care? 36 00:02:19,932 --> 00:02:21,590 AUDIENCE: Nothing cost reducing. 37 00:02:21,590 --> 00:02:23,340 FREDERICK SALVUCCI: Nothing cost reducing. 38 00:02:23,340 --> 00:02:27,880 A sneaky phrase that I put in was cost reducing technology. 39 00:02:27,880 --> 00:02:30,190 In health care, there's a lot of technology, 40 00:02:30,190 --> 00:02:32,770 but it generally increases costs. 41 00:02:32,770 --> 00:02:38,720 Once there's a better way to deal with cancer, 42 00:02:38,720 --> 00:02:42,490 we all want it for our parents, our kids, ourselves. 43 00:02:42,490 --> 00:02:46,120 So technology and health care tends to drive costs up. 44 00:02:48,808 --> 00:02:50,000 For maybe a good thing. 45 00:02:50,000 --> 00:02:51,500 It means we're getting more quality, 46 00:02:51,500 --> 00:02:55,050 but from a cost point of view, it's cost. 47 00:02:55,050 --> 00:02:56,300 Yes. 48 00:02:56,300 --> 00:02:57,830 The cynics think that's a bad thing 49 00:02:57,830 --> 00:02:59,670 because you cost more money. 50 00:02:59,670 --> 00:03:03,170 Better you should die quickly of some disease than hang around 51 00:03:03,170 --> 00:03:05,770 and need more health care. 52 00:03:05,770 --> 00:03:10,340 So it gets at some philosophical questions. 53 00:03:10,340 --> 00:03:16,320 But it's just from a practical point of view. 54 00:03:16,320 --> 00:03:19,680 Baumol's disease is a serious problem 55 00:03:19,680 --> 00:03:22,030 that affects public services. 56 00:03:22,030 --> 00:03:25,050 And it particularly affects public transit, which 57 00:03:25,050 --> 00:03:27,290 is what we're interested here. 58 00:03:27,290 --> 00:03:32,110 So I don't think we talked about this last time. 59 00:03:32,110 --> 00:03:41,180 So what did Baumol say happens with an activity that's 60 00:03:41,180 --> 00:03:43,070 afflicted by Baumol's class disease? 61 00:03:45,710 --> 00:03:49,160 AUDIENCE: To hire the people who perform that activity, 62 00:03:49,160 --> 00:03:50,660 they need to-- 63 00:03:50,660 --> 00:03:54,770 their salary needs to be adjusted to inflation. 64 00:03:54,770 --> 00:03:57,260 But you're essentially paying them more and more 65 00:03:57,260 --> 00:03:59,820 for producing the same amount. 66 00:03:59,820 --> 00:04:02,010 That's where-- that goes the musician example. 67 00:04:02,010 --> 00:04:04,730 Because if you want to hear live music, 68 00:04:04,730 --> 00:04:07,880 paying musicians 100, 200 years goes the same thing. 69 00:04:07,880 --> 00:04:08,954 You have to pay them. 70 00:04:08,954 --> 00:04:10,620 You had to pay back then, you pay today. 71 00:04:10,620 --> 00:04:15,242 But today they pay rent or whatever it is today. 72 00:04:15,242 --> 00:04:16,700 FREDERICK SALVUCCI: So what's the-- 73 00:04:16,700 --> 00:04:21,990 what's Baumol's argument about how 74 00:04:21,990 --> 00:04:29,120 you could continue to have four string quartets performed 75 00:04:29,120 --> 00:04:29,920 If you choose to? 76 00:04:32,609 --> 00:04:33,900 You're going to subsidize them. 77 00:04:33,900 --> 00:04:36,080 But what's the economic rationale that he makes? 78 00:04:38,790 --> 00:04:41,790 His argument is, assuming there's 79 00:04:41,790 --> 00:04:45,645 productivity improvement in the economy overall, 80 00:04:45,645 --> 00:04:50,290 the overall gross domestic product is going up. 81 00:04:50,290 --> 00:04:54,280 So you actually could afford to subsidize 82 00:04:54,280 --> 00:05:01,660 these activities, music, if you had health care, whatever. 83 00:05:01,660 --> 00:05:04,240 And you'd still have a surplus because there's 84 00:05:04,240 --> 00:05:06,910 been enough growth. 85 00:05:06,910 --> 00:05:13,240 Since it's the-- since it's the technological change that is 86 00:05:13,240 --> 00:05:25,880 a factor in the increased wages, then-- 87 00:05:25,880 --> 00:05:32,070 and here the theory is that in the parts of the economy that 88 00:05:32,070 --> 00:05:38,600 are experiencing introduction of cost saving technologies, 89 00:05:38,600 --> 00:05:44,260 labor will be able to get pay increases higher 90 00:05:44,260 --> 00:05:47,650 than the rate of inflation, because they're 91 00:05:47,650 --> 00:05:52,050 in a position to leverage that growing productivity. 92 00:05:52,050 --> 00:05:54,260 Are you with me on that? 93 00:05:54,260 --> 00:05:59,260 So now, the worker and industry A 94 00:05:59,260 --> 00:06:02,950 that has productivity improvements 95 00:06:02,950 --> 00:06:07,500 gets pay increases beyond the rate of inflation. 96 00:06:07,500 --> 00:06:11,480 But if I'm trying to hire bus drivers, 97 00:06:11,480 --> 00:06:14,240 the bus driver wants the same pay 98 00:06:14,240 --> 00:06:16,910 because he's living in the same metropolitan area, 99 00:06:16,910 --> 00:06:18,680 paying the same rent. 100 00:06:18,680 --> 00:06:21,230 So the bus driver wants to get the same pay increases 101 00:06:21,230 --> 00:06:25,670 that the worker in the more highly productive sector 102 00:06:25,670 --> 00:06:27,320 is getting. 103 00:06:27,320 --> 00:06:32,660 So embedded within the productivity improvement 104 00:06:32,660 --> 00:06:35,090 is a wage increase. 105 00:06:35,090 --> 00:06:37,310 Now there's a presumption there that labor 106 00:06:37,310 --> 00:06:40,790 does get a proportionate share of the productivity 107 00:06:40,790 --> 00:06:42,620 improvement. 108 00:06:42,620 --> 00:06:44,330 Recently that has not been happening. 109 00:06:44,330 --> 00:06:46,820 For a long time that appeared to be the case when 110 00:06:46,820 --> 00:06:48,590 Baumol was writing. 111 00:06:48,590 --> 00:06:54,230 So you end up with the technologically advancing 112 00:06:54,230 --> 00:06:58,160 sector needing to pay higher wages. 113 00:06:58,160 --> 00:07:02,720 The more stagnant sectors needing 114 00:07:02,720 --> 00:07:05,840 to pay comparable salaries to attract labor, 115 00:07:05,840 --> 00:07:09,320 because they're working in the same market. 116 00:07:09,320 --> 00:07:13,160 And therefore, larger and larger subsidies in those 117 00:07:13,160 --> 00:07:15,142 sectors where productivity is not improving. 118 00:07:15,142 --> 00:07:16,600 AUDIENCE: So a couple of questions. 119 00:07:16,600 --> 00:07:19,899 One, I guess this assumes full employment. 120 00:07:19,899 --> 00:07:21,607 If there wasn't full employment, then you 121 00:07:21,607 --> 00:07:24,062 would pay bus drivers less than the more technologically 122 00:07:24,062 --> 00:07:26,030 advanced employees. 123 00:07:26,030 --> 00:07:31,010 FREDERICK SALVUCCI: Well it assumes full employment would 124 00:07:31,010 --> 00:07:33,570 be one way to think about it. 125 00:07:33,570 --> 00:07:36,750 But if there's not full employment, 126 00:07:36,750 --> 00:07:39,620 but the workers are organized, and in transit they're 127 00:07:39,620 --> 00:07:40,710 very organized. 128 00:07:40,710 --> 00:07:43,480 And they're able to command-- 129 00:07:43,480 --> 00:07:46,067 they're able to bargain for higher wages 130 00:07:46,067 --> 00:07:47,900 because they can make the comparison to what 131 00:07:47,900 --> 00:07:51,810 other workers make with similar educational background. 132 00:07:51,810 --> 00:07:54,380 And even though there are unemployed people there, 133 00:07:54,380 --> 00:07:58,640 because the union is able to control the workplace 134 00:07:58,640 --> 00:08:03,020 to some degree, even full employment 135 00:08:03,020 --> 00:08:08,270 isn't a necessary condition for this problem 136 00:08:08,270 --> 00:08:12,340 to occur and to grow. 137 00:08:12,340 --> 00:08:15,140 AUDIENCE: Being organized is the necessary condition [INAUDIBLE] 138 00:08:15,140 --> 00:08:15,410 FREDERICK SALVUCCI: Yes. 139 00:08:15,410 --> 00:08:17,480 I would argue being organized is more 140 00:08:17,480 --> 00:08:19,070 important than full employment. 141 00:08:19,070 --> 00:08:21,760 AUDIENCE: And is that because, the way I think about 142 00:08:21,760 --> 00:08:25,406 is that because transport is such an essential service? 143 00:08:25,406 --> 00:08:26,780 For example, when I was in London 144 00:08:26,780 --> 00:08:30,240 the tube shut down like 15 times for strikes. 145 00:08:30,240 --> 00:08:33,337 And the government is really resistant to increasing wages, 146 00:08:33,337 --> 00:08:34,420 giving into their demands. 147 00:08:34,420 --> 00:08:37,159 But eventually they have to because you're 148 00:08:37,159 --> 00:08:39,024 losing a billions dollars in the economy 149 00:08:39,024 --> 00:08:40,565 or something like that every time you 150 00:08:40,565 --> 00:08:41,990 shut down the Tube for a day. 151 00:08:41,990 --> 00:08:43,460 FREDERICK SALVUCCI: Yes. 152 00:08:43,460 --> 00:08:51,440 So-- Yes, so it's the practical consequences. 153 00:08:51,440 --> 00:08:54,620 Labor has a lot of leverage. 154 00:08:54,620 --> 00:08:59,120 And if you think about the areas we're talking about, 155 00:08:59,120 --> 00:09:03,770 they tend to be areas that have a high labor content. 156 00:09:03,770 --> 00:09:05,630 Or they wouldn't be so vulnerable. 157 00:09:05,630 --> 00:09:08,420 By the very-- it's a circular logic. 158 00:09:08,420 --> 00:09:10,220 They are vulnerable to Baumol's disease 159 00:09:10,220 --> 00:09:13,430 because they employ a lot of local labor. 160 00:09:13,430 --> 00:09:16,490 And the productivity is not increasing 161 00:09:16,490 --> 00:09:18,890 with technology change. 162 00:09:18,890 --> 00:09:21,430 Therefore, they've got a growing problem. 163 00:09:21,430 --> 00:09:24,380 And the problem is compounded because the workers being 164 00:09:24,380 --> 00:09:30,290 numerous, and organized, are able to get those higher pays. 165 00:09:30,290 --> 00:09:32,600 So you're in a bit of a bind. 166 00:09:32,600 --> 00:09:34,340 So what do you-- 167 00:09:34,340 --> 00:09:38,490 you can simply pay more. 168 00:09:38,490 --> 00:09:44,000 But the other consequence of having the government 169 00:09:44,000 --> 00:09:49,850 into the subsidy business is that other agendas then 170 00:09:49,850 --> 00:09:51,560 accumulate. 171 00:09:51,560 --> 00:09:53,960 If Mussolini is in charge, then you 172 00:09:53,960 --> 00:09:58,040 have to join the Fascist Party or you're not allowed to sing. 173 00:09:58,040 --> 00:10:05,010 If Obama is in charge or some other elected official 174 00:10:05,010 --> 00:10:07,440 that you like better than Mussolini, 175 00:10:07,440 --> 00:10:11,910 you're still going to get some political exactions attached 176 00:10:11,910 --> 00:10:13,350 to subsidy. 177 00:10:13,350 --> 00:10:15,900 Because get-- the process of getting subsidy 178 00:10:15,900 --> 00:10:20,880 through a legislative process gives people leverage. 179 00:10:20,880 --> 00:10:23,640 And there's a particular problem. 180 00:10:23,640 --> 00:10:26,820 Why might the problem be worse for transit 181 00:10:26,820 --> 00:10:29,970 than it is, say for education? 182 00:10:29,970 --> 00:10:32,280 Assume for the sake of argument, education and transit 183 00:10:32,280 --> 00:10:35,700 are similarly dominated by local labor, 184 00:10:35,700 --> 00:10:40,110 and similarly if afflicted with Baumol's disease. 185 00:10:40,110 --> 00:10:43,890 Why might the leverage issue be different 186 00:10:43,890 --> 00:10:45,855 in the legislative bodies? 187 00:10:53,262 --> 00:10:54,720 AUDIENCE: In many ways the teachers 188 00:10:54,720 --> 00:10:59,410 are like [INAUDIBLE] employees maybe more 189 00:10:59,410 --> 00:11:05,550 than the bus driver [INAUDIBLE] Is it 190 00:11:05,550 --> 00:11:08,392 because education is compulsory [INAUDIBLE] 191 00:11:08,392 --> 00:11:09,500 probably why [INAUDIBLE] 192 00:11:09,500 --> 00:11:11,250 FREDERICK SALVUCCI: Well not so much that. 193 00:11:11,250 --> 00:11:14,130 It's much more Universal. 194 00:11:14,130 --> 00:11:17,430 Kids in Springfield need to go to school. 195 00:11:17,430 --> 00:11:21,670 Kids all over Massachusetts need to go to school. 196 00:11:21,670 --> 00:11:25,210 North Adams and Pittsfield don't require the same amount 197 00:11:25,210 --> 00:11:28,649 of transit that the bus metropolitan area does 198 00:11:28,649 --> 00:11:30,190 because we're a congested area, we've 199 00:11:30,190 --> 00:11:32,260 got a certain kind of economy. 200 00:11:32,260 --> 00:11:34,990 So there's a much higher proportion, much higher 201 00:11:34,990 --> 00:11:37,750 dependency on public transportation 202 00:11:37,750 --> 00:11:39,950 in a place like London, or a place like Boston, 203 00:11:39,950 --> 00:11:44,480 than there isn't a place like North Adams. 204 00:11:44,480 --> 00:11:48,350 So when you're going to the legislature saying, 205 00:11:48,350 --> 00:11:51,420 I need money to subsidize the MBTA, 206 00:11:51,420 --> 00:11:53,330 the legislator from a district that 207 00:11:53,330 --> 00:11:56,000 doesn't get much service says well, 208 00:11:56,000 --> 00:11:57,770 what are you going to give me? 209 00:11:57,770 --> 00:12:02,420 So why should I vote for this subsidy so people in Boston 210 00:12:02,420 --> 00:12:06,972 can ride more convenient transit at lower cost? 211 00:12:06,972 --> 00:12:08,180 You've got give me something. 212 00:12:08,180 --> 00:12:12,770 So the political process imposes conditions 213 00:12:12,770 --> 00:12:25,190 on the process of subsidy that exacts a premium on top of what 214 00:12:25,190 --> 00:12:27,810 Baumol would have predicted. 215 00:12:27,810 --> 00:12:32,140 Baumol's analysis was that it's all 216 00:12:32,140 --> 00:12:34,060 about competition for labor. 217 00:12:34,060 --> 00:12:36,340 And you're going to be forced to pay the prevailing 218 00:12:36,340 --> 00:12:40,690 wage in that metropolitan area in order to attract labor, 219 00:12:40,690 --> 00:12:43,300 because there are competing opportunities for workers 220 00:12:43,300 --> 00:12:43,870 to work. 221 00:12:43,870 --> 00:12:45,970 Let's assume it's full employment, 222 00:12:45,970 --> 00:12:48,040 possibly it's because of the leverage 223 00:12:48,040 --> 00:12:52,370 in the workplace of the union. 224 00:12:52,370 --> 00:12:54,850 But you're going to have to pay that metropolitan area 225 00:12:54,850 --> 00:12:55,980 competitive wage. 226 00:12:55,980 --> 00:12:59,920 But what Baumol isn't calculating 227 00:12:59,920 --> 00:13:02,410 is that the very process of getting subsidy out 228 00:13:02,410 --> 00:13:07,030 of the political process imposes these extra costs. 229 00:13:07,030 --> 00:13:11,320 So this is all me rambling theory. 230 00:13:11,320 --> 00:13:12,840 So a couple of years-- 231 00:13:12,840 --> 00:13:14,340 AUDIENCE: Pure-hearted politicians. 232 00:13:14,340 --> 00:13:15,340 FREDERICK SALVUCCI: Yes. 233 00:13:15,340 --> 00:13:17,200 Even with good politicians that are really 234 00:13:17,200 --> 00:13:19,989 trying to do the right thing, they want to support transit. 235 00:13:19,989 --> 00:13:22,530 They have to convince voters in other parts of the state that 236 00:13:22,530 --> 00:13:25,280 don't have much transit to put money into it. 237 00:13:25,280 --> 00:13:28,300 They've got to do something different. 238 00:13:28,300 --> 00:13:34,120 I mean, in Massachusetts for a long time what Western Mass was 239 00:13:34,120 --> 00:13:36,970 getting out of the state government 240 00:13:36,970 --> 00:13:39,100 was the University of Massachusetts payroll. 241 00:13:39,100 --> 00:13:42,760 Because UMass was located out Amherst, there were jobs. 242 00:13:42,760 --> 00:13:45,720 It was a very important part of the economy 243 00:13:45,720 --> 00:13:47,920 that's not very robust. 244 00:13:47,920 --> 00:13:51,970 There were heavy subsidies to higher public education. 245 00:13:51,970 --> 00:13:54,700 Eastern Mass, in an earlier period, 246 00:13:54,700 --> 00:13:57,790 was much more dominated by private universities. 247 00:13:57,790 --> 00:13:59,170 Now there's a UMass Boston. 248 00:13:59,170 --> 00:14:00,640 But in an early period was really 249 00:14:00,640 --> 00:14:02,470 all concentrated out there. 250 00:14:02,470 --> 00:14:06,970 So the rough trade was, OK you got the T, I got UMass. 251 00:14:06,970 --> 00:14:13,990 But there is some price attached by the political process 252 00:14:13,990 --> 00:14:15,370 to providing subsidy. 253 00:14:15,370 --> 00:14:21,430 Because in the more unevenly spread the service is, 254 00:14:21,430 --> 00:14:23,680 the higher that price is going to be. 255 00:14:23,680 --> 00:14:28,290 That's me making up theory and asking you to believe it. 256 00:14:28,290 --> 00:14:30,970 So a couple of years ago, a couple 257 00:14:30,970 --> 00:14:33,910 of times in the past few decades, 258 00:14:33,910 --> 00:14:39,220 I've been lucky enough to have a lot of very smart students 259 00:14:39,220 --> 00:14:41,440 doing their masters degrees. 260 00:14:41,440 --> 00:14:45,100 So I've inflicted Baumol's disease on a couple of them. 261 00:14:45,100 --> 00:14:51,190 So [INAUDIBLE],, I'm going to mangle his name, [INAUDIBLE].. 262 00:14:51,190 --> 00:14:55,430 Have you guys read his work at all? 263 00:14:55,430 --> 00:14:58,380 He is a brilliant guy from Jordan. 264 00:14:58,380 --> 00:14:59,460 Very interesting fellow. 265 00:14:59,460 --> 00:15:03,690 He did a really nice piece on Baumol's disease, 266 00:15:03,690 --> 00:15:05,970 and somewhat theoretical piece. 267 00:15:05,970 --> 00:15:09,060 And showed, yes, it looks like transit really has it. 268 00:15:09,060 --> 00:15:10,660 Then a couple of years ago, there 269 00:15:10,660 --> 00:15:13,900 was another student named Javier. 270 00:15:13,900 --> 00:15:15,660 I think some of you knew Javier. 271 00:15:15,660 --> 00:15:19,680 So he got-- he did an analysis where 272 00:15:19,680 --> 00:15:24,420 he looked at a large dataset. 273 00:15:24,420 --> 00:15:28,900 I think he looked at something like 700 transit agencies. 274 00:15:28,900 --> 00:15:32,690 And he was just looking at bus services in the United States. 275 00:15:32,690 --> 00:15:38,760 And he found that the MBTA has Baumol's disease, number one. 276 00:15:38,760 --> 00:15:42,190 Number two, every bus provider in the United States 277 00:15:42,190 --> 00:15:43,360 has Baumol's disease. 278 00:15:43,360 --> 00:15:46,180 It's not unique to the T. We think the T is worse, 279 00:15:46,180 --> 00:15:47,285 it's actually not. 280 00:15:47,285 --> 00:15:49,390 It's a problem everywhere. 281 00:15:49,390 --> 00:15:57,260 Number three, there is a premium above what 282 00:15:57,260 --> 00:15:58,910 Baumol would have predicted. 283 00:15:58,910 --> 00:16:03,290 Baumol would have predicted this metropolitan area 284 00:16:03,290 --> 00:16:05,000 comparable wage. 285 00:16:05,000 --> 00:16:09,630 But in fact transit wages are raising perversely, not 286 00:16:09,630 --> 00:16:11,760 only higher than inflation, but higher 287 00:16:11,760 --> 00:16:14,160 than the salaries of comparably skilled workers 288 00:16:14,160 --> 00:16:17,100 in the same metropolitan area. 289 00:16:17,100 --> 00:16:23,210 And the only explanation I could figure out 290 00:16:23,210 --> 00:16:26,300 is the leverage of the legislative process. 291 00:16:26,300 --> 00:16:28,820 We've got two kinds of leverage, the leverage of the workers 292 00:16:28,820 --> 00:16:31,260 in the union bargaining position. 293 00:16:31,260 --> 00:16:34,850 But then you got the leverage of other legislators 294 00:16:34,850 --> 00:16:40,310 who insist on some additional price to be paid. 295 00:16:40,310 --> 00:16:47,470 But you've got labor also commanding power 296 00:16:47,470 --> 00:16:49,940 in the legislative process. 297 00:16:49,940 --> 00:16:53,950 So now, if I'm running the T and I 298 00:16:53,950 --> 00:16:57,700 need to go to the legislature to get money, 299 00:16:57,700 --> 00:17:01,720 the theory is that I'm the boss and there's 300 00:17:01,720 --> 00:17:05,740 this sort of structure and these workers work for me. 301 00:17:05,740 --> 00:17:07,420 The fact is, the workers have way 302 00:17:07,420 --> 00:17:11,290 more power than I do in talking to the legislature, 303 00:17:11,290 --> 00:17:14,609 because the union has a lot of voters. 304 00:17:14,609 --> 00:17:17,670 And they're disciplined, and they can deliver that vote. 305 00:17:17,670 --> 00:17:19,420 And they can deliver workers, and they can 306 00:17:19,420 --> 00:17:21,890 deliver campaign contribution. 307 00:17:21,890 --> 00:17:23,770 And I'm trying to peddle public policy, 308 00:17:23,770 --> 00:17:26,650 and transit is good for you, and you should do this. 309 00:17:26,650 --> 00:17:30,310 So I really need labor as an ally 310 00:17:30,310 --> 00:17:34,360 in getting the support of the legislature for the subsidy. 311 00:17:34,360 --> 00:17:38,920 And, perversely, labor figures that out and demands even more. 312 00:17:38,920 --> 00:17:43,240 So sounds weird, but Javier's data 313 00:17:43,240 --> 00:17:44,920 shows this is absolutely the case. 314 00:17:44,920 --> 00:17:47,110 That there is a premium above and beyond 315 00:17:47,110 --> 00:17:50,230 what Baumol would have predicted. 316 00:17:50,230 --> 00:17:51,730 And it's all over the United States. 317 00:17:51,730 --> 00:17:54,010 Then he took another look. 318 00:17:54,010 --> 00:17:59,410 And we made up a couple of tests of what might an indicator 319 00:17:59,410 --> 00:18:04,210 be of the relative political strength of labor 320 00:18:04,210 --> 00:18:08,270 in a state or a local jurisdiction. 321 00:18:08,270 --> 00:18:14,570 So do any of you know what the right to work laws are? 322 00:18:14,570 --> 00:18:18,745 So what's a right to work law? 323 00:18:18,745 --> 00:18:21,320 AUDIENCE: It's a law that [INAUDIBLE] 324 00:18:21,320 --> 00:18:24,951 they're laws that basically prevent 325 00:18:24,951 --> 00:18:30,308 a union from requiring employees in a given industry 326 00:18:30,308 --> 00:18:31,600 to join a union. 327 00:18:31,600 --> 00:18:32,600 FREDERICK SALVUCCI: Yes. 328 00:18:32,600 --> 00:18:34,970 So the right wingers who don't like 329 00:18:34,970 --> 00:18:40,970 unions, that's all right wingers don't like unions. 330 00:18:40,970 --> 00:18:43,016 They're very clever at making up names 331 00:18:43,016 --> 00:18:44,390 so it's called the right to work, 332 00:18:44,390 --> 00:18:47,540 because that sounds kind of nice. 333 00:18:47,540 --> 00:18:51,770 But it's also from if you're pro union, 334 00:18:51,770 --> 00:18:56,390 it means that the union has to convince workers 335 00:18:56,390 --> 00:18:57,320 to join the union. 336 00:18:57,320 --> 00:18:58,280 They collect dues. 337 00:18:58,280 --> 00:19:02,420 They have to-- it costs money to organize and develop 338 00:19:02,420 --> 00:19:05,270 an agenda, and lobby, et cetera 339 00:19:05,270 --> 00:19:07,940 And if not everyone in the group has to join the union, 340 00:19:07,940 --> 00:19:11,430 then you've got a free rider problem where people can say, 341 00:19:11,430 --> 00:19:16,490 oh, I'm a libertarian, I don't believe in unions' bullshit. 342 00:19:16,490 --> 00:19:18,800 Well, they want you give back half of your pay. 343 00:19:18,800 --> 00:19:22,070 You're enjoying the benefits of having union representation, 344 00:19:22,070 --> 00:19:24,170 but you just don't want to pay your share. 345 00:19:24,170 --> 00:19:27,300 I'm giving the unions point of view obviously. 346 00:19:27,300 --> 00:19:30,170 So are the what-- 347 00:19:30,170 --> 00:19:32,320 AUDIENCE: I said or you're Ayn Rand. 348 00:19:32,320 --> 00:19:33,950 FREDERICK SALVUCCI: Oh, OK. 349 00:19:33,950 --> 00:19:35,930 So anyway, you get-- 350 00:19:40,300 --> 00:19:48,310 so you get this situation where we hypothesized that-- 351 00:19:50,920 --> 00:19:55,810 right to work laws passed in a lot of states, 352 00:19:55,810 --> 00:19:58,120 and didn't pass in a lot of states. 353 00:19:58,120 --> 00:20:01,670 And they did not pass and states surprisingly, 354 00:20:01,670 --> 00:20:02,770 that have strong unions. 355 00:20:02,770 --> 00:20:06,100 And they did pass in the South and in places 356 00:20:06,100 --> 00:20:08,650 where they weren't, where there wasn't much political power 357 00:20:08,650 --> 00:20:09,420 on union side. 358 00:20:09,420 --> 00:20:13,750 So we said, well, maybe that's a proxy for the political power 359 00:20:13,750 --> 00:20:15,340 of unions. 360 00:20:15,340 --> 00:20:20,590 So have Javier took the right to work states, separated them out 361 00:20:20,590 --> 00:20:27,650 from the states where union membership is a requirement. 362 00:20:27,650 --> 00:20:32,030 And lo and behold, yes there's a bigger premium 363 00:20:32,030 --> 00:20:38,330 on top of Baumol in the states that are more union culture. 364 00:20:38,330 --> 00:20:40,790 And the states that are more anti-union in culture, 365 00:20:40,790 --> 00:20:42,410 there's less of a premium being paid. 366 00:20:42,410 --> 00:20:46,910 So it looks from the data like this guess 367 00:20:46,910 --> 00:20:50,390 as to what's going on is at least consistent with what 368 00:20:50,390 --> 00:20:51,680 the data says. 369 00:20:51,680 --> 00:20:55,590 Javier you added a couple of nice papers on it. 370 00:20:55,590 --> 00:20:59,760 So then the next question is, so what do you, 371 00:20:59,760 --> 00:21:01,600 what do you do about this? 372 00:21:01,600 --> 00:21:04,470 AUDIENCE: So is there anything else 373 00:21:04,470 --> 00:21:08,240 that's like the government when they give jobs 374 00:21:08,240 --> 00:21:10,590 wants to give good paying jobs? 375 00:21:10,590 --> 00:21:13,120 Is like a part of it. 376 00:21:13,120 --> 00:21:16,350 Not just how to get votes from the bus drivers themselves, 377 00:21:16,350 --> 00:21:18,554 but from other people. 378 00:21:18,554 --> 00:21:19,970 But the government's always trying 379 00:21:19,970 --> 00:21:23,180 to-- like this whole election was won on creating jobs. 380 00:21:23,180 --> 00:21:25,147 I know these are government jobs. 381 00:21:25,147 --> 00:21:25,980 [INTERPOSING VOICES] 382 00:21:25,980 --> 00:21:34,330 FREDERICK SALVUCCI: Well for politicians 383 00:21:34,330 --> 00:21:36,510 who get their votes from workers, 384 00:21:36,510 --> 00:21:40,570 there's more of a desire to be a good employer. 385 00:21:40,570 --> 00:21:45,850 But it's actually inconvenient to have a subset of workers 386 00:21:45,850 --> 00:21:51,490 who are largely financed through subsidy, making higher wages, 387 00:21:51,490 --> 00:21:54,880 and with better health care and pension benefits 388 00:21:54,880 --> 00:21:58,480 than other workers who are paying the taxes. 389 00:21:58,480 --> 00:22:02,280 So it actually creates a division within the workers, 390 00:22:02,280 --> 00:22:05,620 that why the hell is this guy getting more than me. 391 00:22:05,620 --> 00:22:07,070 And I'm paying his salary. 392 00:22:07,070 --> 00:22:10,510 And so it's not particularly convenient, 393 00:22:10,510 --> 00:22:14,020 even for a somewhat left-wing politician 394 00:22:14,020 --> 00:22:19,262 to want to pay higher pays, other than the fact 395 00:22:19,262 --> 00:22:21,220 that especially if they're from a district that 396 00:22:21,220 --> 00:22:23,440 has a lot of bus drivers, then they 397 00:22:23,440 --> 00:22:25,130 want to take care of that constituency. 398 00:22:25,130 --> 00:22:29,590 So there's the kind of client-based politics 399 00:22:29,590 --> 00:22:33,320 that drives some politicians in that direction. 400 00:22:33,320 --> 00:22:36,640 But a sort of general left leaning attitude 401 00:22:36,640 --> 00:22:40,450 wouldn't particularly argue to pay transit workers higher 402 00:22:40,450 --> 00:22:42,327 than teachers. 403 00:22:42,327 --> 00:22:44,410 But transit workers make more money than teachers. 404 00:22:44,410 --> 00:22:48,760 So I mean it's a pretty weird situation. 405 00:22:48,760 --> 00:22:50,950 And you keep peeling away the onion 406 00:22:50,950 --> 00:22:53,410 saying what's really going on here. 407 00:22:53,410 --> 00:22:56,380 And it looks like A, Baumol's disease is a real problem. 408 00:22:56,380 --> 00:22:59,730 And B, there is this premium on top of Baumol's disease 409 00:22:59,730 --> 00:23:02,110 that comes out of the nature of the political process, 410 00:23:02,110 --> 00:23:04,900 and the extra bargaining that labor has. 411 00:23:04,900 --> 00:23:09,250 So labor has bargaining of the normal kind that a union always 412 00:23:09,250 --> 00:23:12,790 has with an employer, because they 413 00:23:12,790 --> 00:23:14,710 control the supply of labor. 414 00:23:14,710 --> 00:23:17,050 But then it has this political dimension. 415 00:23:17,050 --> 00:23:22,210 So once the enterprise becomes dependent on political support 416 00:23:22,210 --> 00:23:26,010 for subsidy, labor now has to bite of the apple. 417 00:23:26,010 --> 00:23:30,740 And I think it makes sense as a theory. 418 00:23:30,740 --> 00:23:33,430 Looks like the data supported it from Javier's research. 419 00:23:33,430 --> 00:23:34,556 Yes? 420 00:23:34,556 --> 00:23:36,946 AUDIENCE: So transport [INAUDIBLE] teachers 421 00:23:36,946 --> 00:23:42,890 [INAUDIBLE] at least to what Scott said about the fact 422 00:23:42,890 --> 00:23:46,900 that transit the TFL goes on strike, 423 00:23:46,900 --> 00:23:50,060 then the London economy loses a billion a day. 424 00:23:50,060 --> 00:23:54,290 When transit agencies, when their labor goes on strike, 425 00:23:54,290 --> 00:23:56,530 the economic pain that they create 426 00:23:56,530 --> 00:23:59,620 is immediate versus teachers. 427 00:23:59,620 --> 00:24:02,970 If our kids aren't being educated, then the impact 428 00:24:02,970 --> 00:24:06,060 we'll be seeing only 10 to 20 years down the line. 429 00:24:06,060 --> 00:24:08,620 So with transit the economic pain 430 00:24:08,620 --> 00:24:10,070 is they have more [INAUDIBLE]. 431 00:24:10,070 --> 00:24:14,990 It's not, its leverage and its immediate economic impact. 432 00:24:14,990 --> 00:24:17,200 That's why the unions exist [INAUDIBLE].. 433 00:24:17,200 --> 00:24:19,260 So that's why transit [INAUDIBLE] 434 00:24:19,260 --> 00:24:21,060 if transit workers go on strike, but you 435 00:24:21,060 --> 00:24:23,643 don't go on strike in the summer when people can walk to work. 436 00:24:23,643 --> 00:24:26,560 And let's face it, [INAUDIBLE] go on strike in the winter when 437 00:24:26,560 --> 00:24:27,640 the weather [INAUDIBLE]. 438 00:24:27,640 --> 00:24:29,880 The same reason that garbage men go on strike in the summer, 439 00:24:29,880 --> 00:24:30,700 is because if they go on strike in the winter, 440 00:24:30,700 --> 00:24:33,033 the garbage piles up, and freezes, and no one smells it. 441 00:24:33,033 --> 00:24:35,579 But if they go on strike in the summer, 442 00:24:35,579 --> 00:24:36,745 they use that kind of logic. 443 00:24:36,745 --> 00:24:38,036 It's the same kind of leverage. 444 00:24:38,036 --> 00:24:41,910 It has more of an immediate effect. 445 00:24:41,910 --> 00:24:44,230 FREDERICK SALVUCCI: So [INAUDIBLE] 446 00:24:44,230 --> 00:24:49,210 was also advising out here on his thesis and on the papers 447 00:24:49,210 --> 00:24:51,820 that he wrote on this. 448 00:24:51,820 --> 00:24:55,795 So [INAUDIBLE] said well, let's take a look at whether-- 449 00:24:58,700 --> 00:25:05,870 I mean one way to try to counter Baumol disease would 450 00:25:05,870 --> 00:25:07,310 be to become more productive. 451 00:25:07,310 --> 00:25:10,280 After all, this disease comes because of a lack 452 00:25:10,280 --> 00:25:12,080 of productivity growth. 453 00:25:12,080 --> 00:25:14,490 Shouldn't we look at improving productivity first? 454 00:25:14,490 --> 00:25:22,850 Is transit performing at the efficiency frontier in the way 455 00:25:22,850 --> 00:25:25,830 they're employing their resources. 456 00:25:25,830 --> 00:25:29,970 So a bunch of more analysis is done. 457 00:25:29,970 --> 00:25:33,620 And, of course, transit isn't operating anywhere 458 00:25:33,620 --> 00:25:34,850 near its efficiency. 459 00:25:38,290 --> 00:25:39,260 So it's a question. 460 00:25:39,260 --> 00:25:41,360 It's important to look at it. 461 00:25:41,360 --> 00:25:46,217 And as managers, if you end up as managers in transit systems, 462 00:25:46,217 --> 00:25:48,050 you certainly have to pay a lot of attention 463 00:25:48,050 --> 00:25:52,420 to looking for ways to produce better quality 464 00:25:52,420 --> 00:25:57,280 public transportation at lower cost. 465 00:25:57,280 --> 00:26:01,180 I believe that it's more fruitful to look to get better 466 00:26:01,180 --> 00:26:04,470 quality for similar cost. 467 00:26:04,470 --> 00:26:07,180 The current management to the T thinks 468 00:26:07,180 --> 00:26:11,560 that it's a victory to give you the same crappy service, 469 00:26:11,560 --> 00:26:13,590 but spend less money doing it. 470 00:26:13,590 --> 00:26:17,950 I don't think that's all that good. 471 00:26:17,950 --> 00:26:20,030 The objective is not to reduce costs. 472 00:26:20,030 --> 00:26:23,660 The objective is to improve what you're offering people, 473 00:26:23,660 --> 00:26:24,160 I think. 474 00:26:24,160 --> 00:26:29,300 If you want your product to be prized, and still 475 00:26:29,300 --> 00:26:31,460 around in 10 years, as opposed to just 476 00:26:31,460 --> 00:26:33,590 being a temporary Band-Aid. 477 00:26:33,590 --> 00:26:36,000 But there are different philosophies of management. 478 00:26:36,000 --> 00:26:38,570 But in either case, whether you're 479 00:26:38,570 --> 00:26:41,390 looking at a cost reduction type strategy, 480 00:26:41,390 --> 00:26:44,690 or whether you're looking at a value maximization, 481 00:26:44,690 --> 00:26:47,600 productivity and efficiency are important things to look to. 482 00:26:47,600 --> 00:26:51,440 So that's such one kind of thing you should 483 00:26:51,440 --> 00:26:52,910 be involved in all the time. 484 00:26:55,840 --> 00:27:04,800 And you could also think about what 485 00:27:04,800 --> 00:27:11,700 are the external factors that might lead transit to become 486 00:27:11,700 --> 00:27:15,335 more valuable over time. 487 00:27:19,250 --> 00:27:22,510 Even if you're not being particularly more efficient 488 00:27:22,510 --> 00:27:25,090 in the way you're delivering it. 489 00:27:25,090 --> 00:27:30,100 So if the metropolitan area is growing, 490 00:27:30,100 --> 00:27:37,050 and if transit is also growing, then the cost 491 00:27:37,050 --> 00:27:42,210 per rider or the subsidy provider should go down. 492 00:27:42,210 --> 00:27:47,500 Because you've got less empty seats, that's the nice version. 493 00:27:47,500 --> 00:27:50,850 You've got more crowded buses, the not so nice version. 494 00:27:50,850 --> 00:27:56,280 But you can get more service, if you 495 00:27:56,280 --> 00:27:59,190 don't look too hard at the quality of that service, 496 00:27:59,190 --> 00:28:02,830 at lower cost as the system gets more and more customers. 497 00:28:02,830 --> 00:28:07,350 So growth in passengers is certainly benign. 498 00:28:07,350 --> 00:28:09,780 Now too much of a good thing is a bad thing. 499 00:28:09,780 --> 00:28:13,470 You get the kind of crowding you're studying in Chicago. 500 00:28:13,470 --> 00:28:15,949 That doesn't seem quite efficient when people can't of 501 00:28:15,949 --> 00:28:18,240 get on, and are being left behind, and everything else. 502 00:28:18,240 --> 00:28:21,420 But from the point of view of the green eyeshade guys, 503 00:28:21,420 --> 00:28:23,670 that are just looking at the numbers, the more people 504 00:28:23,670 --> 00:28:29,310 you cram onto the vehicles that's dampening down 505 00:28:29,310 --> 00:28:30,370 the subsidy a bit. 506 00:28:30,370 --> 00:28:36,510 So even with no particular management, effort, or skill, 507 00:28:36,510 --> 00:28:38,430 if the region happens to be growing, 508 00:28:38,430 --> 00:28:42,450 and if transit ridership happens to be growing, 509 00:28:42,450 --> 00:28:46,350 then the value of the transit is growing. 510 00:28:46,350 --> 00:28:53,770 And that can offset the Baumol's problem to some degree. 511 00:28:53,770 --> 00:28:59,180 And if you think of what the competing mode is. 512 00:28:59,180 --> 00:29:02,990 If the area is growing and the jobs are growing, 513 00:29:02,990 --> 00:29:06,050 and the congestion on the roadways are growing, 514 00:29:06,050 --> 00:29:09,710 conditions that certainly apply here and in Chicago. 515 00:29:09,710 --> 00:29:12,980 Then the societal value of the transit 516 00:29:12,980 --> 00:29:17,600 is higher, both for the riders because 517 00:29:17,600 --> 00:29:22,120 their alternative choice is to be in the congestion. 518 00:29:22,120 --> 00:29:24,260 And for the drivers who don't use transit 519 00:29:24,260 --> 00:29:26,540 who are in the congested conditions who 520 00:29:26,540 --> 00:29:29,090 are happy to have some people out of their way. 521 00:29:29,090 --> 00:29:33,110 So through no virtue of the transit manager, 522 00:29:33,110 --> 00:29:36,410 if the regions are growing and ridership is growing, 523 00:29:36,410 --> 00:29:40,640 that can help offset the Baumol's disease. 524 00:29:40,640 --> 00:29:43,480 Both in the practical sense of getting more revenue, 525 00:29:43,480 --> 00:29:47,780 and in the theoretical sense that the value of the transit 526 00:29:47,780 --> 00:29:50,750 collective product is actually going up, 527 00:29:50,750 --> 00:29:54,030 through no virtue of your own. 528 00:29:54,030 --> 00:29:56,793 AUDIENCE: So [INAUDIBLE] they're growing about 100,000 people 529 00:29:56,793 --> 00:29:59,360 a year. 530 00:29:59,360 --> 00:30:02,205 I'm just wondering whether when that's happening, when they're 531 00:30:02,205 --> 00:30:05,095 not opening any new tube lines essentially, there's one, 532 00:30:05,095 --> 00:30:06,790 well one big line coming in soon. 533 00:30:06,790 --> 00:30:08,309 But they're not any new lines lines. 534 00:30:08,309 --> 00:30:10,100 Everything's getting more and more crowded. 535 00:30:10,100 --> 00:30:11,788 It's actually hard to get on. 536 00:30:14,420 --> 00:30:17,921 Almost there's a way to-- and it's not politically very good 537 00:30:17,921 --> 00:30:21,536 way to raise taxes, especially during peak [INAUDIBLE] 538 00:30:21,536 --> 00:30:24,910 things like that, to actually allow people to get on. 539 00:30:24,910 --> 00:30:27,850 And then you almost have reverse Baumol's disease 540 00:30:27,850 --> 00:30:30,810 because the value has gotten so high. 541 00:30:30,810 --> 00:30:36,241 And the alternatives are [INAUDIBLE] in the tube ride. 542 00:30:36,241 --> 00:30:37,240 FREDERICK SALVUCCI: Yes. 543 00:30:37,240 --> 00:30:42,970 So it would have to be pretty extreme to actually totally 544 00:30:42,970 --> 00:30:44,650 offset the Baumol problem. 545 00:30:44,650 --> 00:30:46,460 But it's certainly an offset. 546 00:30:46,460 --> 00:30:51,681 And that's-- none of you guys are going to rat me out, 547 00:30:51,681 --> 00:30:52,180 are you? 548 00:30:52,180 --> 00:30:55,250 This thing is being taped isn't it? 549 00:30:55,250 --> 00:30:57,533 AUDIENCE: Maybe an eighth of us. 550 00:30:57,533 --> 00:30:58,465 [INAUDIBLE] 551 00:30:58,465 --> 00:31:00,840 FREDERICK SALVUCCI: Well, we've got our visitors from TFL 552 00:31:00,840 --> 00:31:01,700 coming tomorrow. 553 00:31:01,700 --> 00:31:02,949 And they they're great people. 554 00:31:02,949 --> 00:31:05,010 And it's a very competent organization. 555 00:31:05,010 --> 00:31:06,510 And they're very proud of themselves 556 00:31:06,510 --> 00:31:07,860 for running a good service. 557 00:31:07,860 --> 00:31:12,600 And they, in fact, for a long time 558 00:31:12,600 --> 00:31:15,420 were able to persuade two different mayors. 559 00:31:15,420 --> 00:31:19,180 One, the labor mayor red Ken Livingstone 560 00:31:19,180 --> 00:31:23,520 the Trotskyite, and then the right wing conservative 561 00:31:23,520 --> 00:31:26,910 mayor Boris. 562 00:31:26,910 --> 00:31:31,080 And they were able to convince the Trotskyite, as well 563 00:31:31,080 --> 00:31:35,100 as the conservative that it was OK to try 564 00:31:35,100 --> 00:31:41,760 to increase transit fares by the rate of inflation plus 1%. 565 00:31:41,760 --> 00:31:45,750 That's a pretty steep, especially for a labor 566 00:31:45,750 --> 00:31:47,250 kind of mayor. 567 00:31:47,250 --> 00:31:49,350 The current mayor is a socialist, 568 00:31:49,350 --> 00:31:52,110 and he's not into seeing that continue. 569 00:31:52,110 --> 00:31:53,610 And I don't blame him. 570 00:31:53,610 --> 00:31:58,941 But TFL was really happy that they had this strategy. 571 00:31:58,941 --> 00:32:00,690 And of course they argued that well, we're 572 00:32:00,690 --> 00:32:01,930 providing better service. 573 00:32:01,930 --> 00:32:03,804 So people should pay for that better service. 574 00:32:03,804 --> 00:32:07,020 And to some degree that's true. 575 00:32:07,020 --> 00:32:11,030 And their numbers were looking very good. 576 00:32:11,030 --> 00:32:15,770 But it turned out that the population of London 577 00:32:15,770 --> 00:32:19,190 had grown in the previous five years, more than anyone knew. 578 00:32:19,190 --> 00:32:24,350 So there was a secret assist to the numbers coming out 579 00:32:24,350 --> 00:32:26,930 of the fact that the population had just grown, 580 00:32:26,930 --> 00:32:28,550 along with a growing economy. 581 00:32:28,550 --> 00:32:31,430 And not to take anything away from a very competent bunch 582 00:32:31,430 --> 00:32:34,610 of people running TFL, they were in the right place 583 00:32:34,610 --> 00:32:35,500 at the right time. 584 00:32:35,500 --> 00:32:39,820 You bunt on third base and think you hit a triple. 585 00:32:39,820 --> 00:32:41,720 Here we are. 586 00:32:41,720 --> 00:32:44,510 You're in London with this terrific system, 587 00:32:44,510 --> 00:32:47,060 and the economy is growing, and it's kind of going up. 588 00:32:47,060 --> 00:32:50,050 Now it's a little unfair because they are very competent, 589 00:32:50,050 --> 00:32:52,650 and they're doing a good job, and they work hard at it. 590 00:32:52,650 --> 00:32:55,531 But a lot of it is just luck of being in the right place 591 00:32:55,531 --> 00:32:56,280 at the right time. 592 00:32:56,280 --> 00:33:02,180 So there's an external extra benefit to transit 593 00:33:02,180 --> 00:33:06,530 that can help offset Baumol's disease in those cities that 594 00:33:06,530 --> 00:33:07,122 are growing. 595 00:33:07,122 --> 00:33:09,080 So what do you do in a city that's not growing? 596 00:33:09,080 --> 00:33:10,400 What do you do in North Adams? 597 00:33:10,400 --> 00:33:13,670 What do you do when General Electric pulls out a Pittsfield 598 00:33:13,670 --> 00:33:16,060 yanking 5,000 jobs with them? 599 00:33:16,060 --> 00:33:18,920 You know you don't have that luck in those situations. 600 00:33:18,920 --> 00:33:24,080 So it's nice to be lucky, but you can't bank 601 00:33:24,080 --> 00:33:25,490 on that in a systematic way. 602 00:33:25,490 --> 00:33:28,402 And you need to be able to sort of look at the situation 603 00:33:28,402 --> 00:33:29,360 and think that through. 604 00:33:33,760 --> 00:33:39,060 So another place you might get funding support, 605 00:33:39,060 --> 00:33:42,410 and this is very hard to do, and they successfully did this 606 00:33:42,410 --> 00:33:44,042 to some degree in London. 607 00:33:44,042 --> 00:33:48,380 Is to try to secure funding support, at least 608 00:33:48,380 --> 00:33:53,570 political support, from those growth constituencies. 609 00:33:53,570 --> 00:34:00,850 So the easy thing to do, not easy, all of this is tough. 610 00:34:00,850 --> 00:34:04,750 But the relatively feasible thing to do 611 00:34:04,750 --> 00:34:07,570 is to identify the beneficiaries of what 612 00:34:07,570 --> 00:34:10,510 you're doing, above and beyond those people 613 00:34:10,510 --> 00:34:12,929 riding on the system. 614 00:34:12,929 --> 00:34:15,076 So you look at what's going on. 615 00:34:15,076 --> 00:34:17,659 And you say, hey, there's a much real estate developers making 616 00:34:17,659 --> 00:34:18,980 a lot of money. 617 00:34:18,980 --> 00:34:23,420 And they couldn't develop those densities except for transit. 618 00:34:23,420 --> 00:34:29,630 So let me go to them and try to get them to politically support 619 00:34:29,630 --> 00:34:32,810 taxes that someone else will pay so that there 620 00:34:32,810 --> 00:34:34,699 can be better transit. 621 00:34:34,699 --> 00:34:37,639 That's the easier lift, right? 622 00:34:37,639 --> 00:34:40,070 Let's increase the sales tax. 623 00:34:40,070 --> 00:34:42,889 Real estate developers don't pay particularly more sales tax 624 00:34:42,889 --> 00:34:45,559 than other people do. 625 00:34:45,559 --> 00:34:47,850 Everybody tries to do things with other people's money. 626 00:34:47,850 --> 00:34:50,540 So I can make a campaign contribution, 627 00:34:50,540 --> 00:34:53,300 raise the sales tax, have a better transit system, 628 00:34:53,300 --> 00:34:55,530 my real estate value goes up, I make money. 629 00:34:55,530 --> 00:34:58,010 That's one proposition. 630 00:34:58,010 --> 00:34:59,480 That doesn't happen automatically. 631 00:34:59,480 --> 00:35:02,710 It's hard to do, but it's doable. 632 00:35:02,710 --> 00:35:09,340 A more significant, more significant 633 00:35:09,340 --> 00:35:14,850 achievement was what transport for London pulled off 634 00:35:14,850 --> 00:35:17,230 on the funding of Crossrail. 635 00:35:17,230 --> 00:35:20,770 Because they went to the financial services community 636 00:35:20,770 --> 00:35:25,720 that really wanted Crossrail because they see-- 637 00:35:25,720 --> 00:35:28,030 they've learned a little bit from the experience 638 00:35:28,030 --> 00:35:30,790 that when Docklands light rail got built, 639 00:35:30,790 --> 00:35:34,090 all of a sudden these Docklands that were kind of abandoned 640 00:35:34,090 --> 00:35:39,490 start to be successful, and too successful, and hard to get to. 641 00:35:39,490 --> 00:35:44,110 And then they do the Jubilee line, and another growth spurt, 642 00:35:44,110 --> 00:35:45,070 and wow. 643 00:35:45,070 --> 00:35:47,142 The economy's growing, this is good. 644 00:35:47,142 --> 00:35:48,100 Now let's do Crossrail. 645 00:35:48,100 --> 00:35:50,230 We're going to really get a massive amount 646 00:35:50,230 --> 00:35:54,730 of additional crosstown capacity, very 647 00:35:54,730 --> 00:35:56,020 large investment. 648 00:35:56,020 --> 00:35:57,340 It's two big digs. 649 00:35:57,340 --> 00:36:00,960 It's like we use the Big Dig as a unit of measurement, 650 00:36:00,960 --> 00:36:04,554 that's about $25 billion, I think it's $25 billion pounds. 651 00:36:04,554 --> 00:36:05,470 Does that sound right? 652 00:36:05,470 --> 00:36:07,662 AUDIENCE: I just know it's a lot. 653 00:36:07,662 --> 00:36:09,370 FREDERICK SALVUCCI: It's a big, big deal. 654 00:36:13,454 --> 00:36:15,120 So how are you going to fund that thing? 655 00:36:15,120 --> 00:36:16,590 Well, let's go to the national governments 656 00:36:16,590 --> 00:36:17,610 and say hey, give us some money. 657 00:36:17,610 --> 00:36:18,540 This is virtuous. 658 00:36:18,540 --> 00:36:19,950 Here's our benefit cost analysis. 659 00:36:19,950 --> 00:36:21,660 Look how wonderful it is. 660 00:36:21,660 --> 00:36:25,440 And the national government say, get out of here. 661 00:36:25,440 --> 00:36:28,820 We've got a political problem, too much going to London. 662 00:36:28,820 --> 00:36:32,640 Lots of parts of the UK that aren't so successful. 663 00:36:32,640 --> 00:36:35,690 They're not very sympathetic, so forget about it. 664 00:36:38,870 --> 00:36:40,970 What they end up at the end of the story 665 00:36:40,970 --> 00:36:43,700 without going through the various attempts, 666 00:36:43,700 --> 00:36:46,130 is they convinced-- 667 00:36:46,130 --> 00:36:49,260 they put together a package that has three components. 668 00:36:49,260 --> 00:36:55,100 One, they pledged to defray a third of the costs of Crossrail 669 00:36:55,100 --> 00:36:59,540 by continually increasing transit revenues. 670 00:36:59,540 --> 00:37:01,820 That can be through more riders, or it 671 00:37:01,820 --> 00:37:03,830 can be the same riders at higher fares, 672 00:37:03,830 --> 00:37:05,700 or a combination of the two. 673 00:37:05,700 --> 00:37:07,422 But a third of the capital cost is 674 00:37:07,422 --> 00:37:09,380 going to come out of the riders because they're 675 00:37:09,380 --> 00:37:12,530 going to be beneficiaries of less crowded conditions, 676 00:37:12,530 --> 00:37:15,500 and more convenient service. 677 00:37:15,500 --> 00:37:19,400 A third of it will get from the government. 678 00:37:19,400 --> 00:37:22,100 And a third of it we're going to put 679 00:37:22,100 --> 00:37:28,400 a surcharge on the real estate tax of large companies 680 00:37:28,400 --> 00:37:32,330 in London, on the commercial real estate. 681 00:37:32,330 --> 00:37:34,970 Not the little corner store, but anything 682 00:37:34,970 --> 00:37:38,090 bigger than some minimum. 683 00:37:38,090 --> 00:37:39,470 Now that's a hard ask. 684 00:37:39,470 --> 00:37:42,260 Because now you're saying to someone, admit it, 685 00:37:42,260 --> 00:37:44,060 you're a beneficiary, and you should 686 00:37:44,060 --> 00:37:47,570 be willing to actually put some of your money on the table. 687 00:37:47,570 --> 00:37:49,640 And they're never going to agree with you because 688 00:37:49,640 --> 00:37:52,070 of the ethical argument. 689 00:37:52,070 --> 00:37:54,080 It's the practical argument look, 690 00:37:54,080 --> 00:37:56,510 we can ask for 100 percent national money all we want, 691 00:37:56,510 --> 00:37:57,740 they're never going to do it. 692 00:37:57,740 --> 00:37:59,690 We've got to have something different. 693 00:37:59,690 --> 00:38:02,900 So they put together this a third, a third, a third package 694 00:38:02,900 --> 00:38:04,610 and they succeeded. 695 00:38:04,610 --> 00:38:09,150 Now, the national government is the most fraudulent 696 00:38:09,150 --> 00:38:10,980 of the three parties. 697 00:38:10,980 --> 00:38:14,250 Because if you think of the, and this 698 00:38:14,250 --> 00:38:16,740 was true with the alleged labor government 699 00:38:16,740 --> 00:38:20,640 then even more true with the conservatives. 700 00:38:20,640 --> 00:38:26,590 What's the marginal rate of income taxation in the UK right 701 00:38:26,590 --> 00:38:27,090 now? 702 00:38:27,090 --> 00:38:29,425 AUDIENCE: Well it depends on what bracket you're in, 703 00:38:29,425 --> 00:38:32,130 but the highest bracket is 45% above 150,000 pounds. 704 00:38:32,130 --> 00:38:33,880 FREDERICK SALVUCCI: OK, and what if you're 705 00:38:33,880 --> 00:38:37,092 say 80,000, 50,000 pounds? 706 00:38:37,092 --> 00:38:39,810 AUDIENCE: You pay like a marginal rate of like 30%. 707 00:38:39,810 --> 00:38:42,520 FREDERICK SALVUCCI: OK 30%. 708 00:38:42,520 --> 00:38:46,310 So [INTERPOSING VOICES] Yeah so 30%. 709 00:38:46,310 --> 00:38:49,060 So we're going to build Crossrail. 710 00:38:49,060 --> 00:38:53,280 This is an unusual burst of construction activity. 711 00:38:53,280 --> 00:38:56,892 We're going to import a bunch of Polish workers to do the work. 712 00:38:56,892 --> 00:38:59,100 They're going to leave their wives and kids back home 713 00:38:59,100 --> 00:39:02,280 in Poland, getting educated back there. 714 00:39:02,280 --> 00:39:05,250 They're going to live on marginal conditions 715 00:39:05,250 --> 00:39:09,060 where they are, and the national governments taking 30% 716 00:39:09,060 --> 00:39:10,440 off the top of what they make. 717 00:39:10,440 --> 00:39:12,660 Maybe more than 30%. 718 00:39:12,660 --> 00:39:15,300 So this one third that the national government 719 00:39:15,300 --> 00:39:17,700 contributed, they're getting it all back 720 00:39:17,700 --> 00:39:24,390 from what they're taking out of that blip in employment 721 00:39:24,390 --> 00:39:25,677 that the project is causing. 722 00:39:25,677 --> 00:39:27,510 So they're the most fraudulent of the three. 723 00:39:27,510 --> 00:39:30,030 They're not really contributing, but boy they 724 00:39:30,030 --> 00:39:35,820 made them crawl through a sewer pipe to get the money. 725 00:39:35,820 --> 00:39:43,420 But the point is, you need to identify 726 00:39:43,420 --> 00:39:46,300 who the beneficiaries are. 727 00:39:46,300 --> 00:39:50,130 And, at the very least, you need to enlist their support 728 00:39:50,130 --> 00:39:52,920 to get someone else to pay taxes. 729 00:39:52,920 --> 00:39:54,750 And you may not get away with that. 730 00:39:54,750 --> 00:39:57,960 So you may have to do something to make the constituency 731 00:39:57,960 --> 00:40:01,020 that benefits put some of their own money on the table. 732 00:40:01,020 --> 00:40:02,880 And the analog on that in Boston would 733 00:40:02,880 --> 00:40:06,240 be, it's very nice to get federal and state money 734 00:40:06,240 --> 00:40:08,911 to upgrade transit services. 735 00:40:08,911 --> 00:40:10,410 But that's state money is coming out 736 00:40:10,410 --> 00:40:14,850 of parts of the state that are much less affluent. 737 00:40:14,850 --> 00:40:19,800 So why shouldn't Boston and Cambridge and Somerville 738 00:40:19,800 --> 00:40:23,340 put some money into both the operation 739 00:40:23,340 --> 00:40:25,800 and maintenance of the service. 740 00:40:25,800 --> 00:40:29,250 Seems to me, there's an ethical argument that they ought to. 741 00:40:29,250 --> 00:40:32,342 And there's a stronger political argument that they better, 742 00:40:32,342 --> 00:40:34,050 because the rest of the state's not going 743 00:40:34,050 --> 00:40:36,380 to pay for Boston anymore. 744 00:40:36,380 --> 00:40:40,080 Boston's doing too well economically to expect sympathy 745 00:40:40,080 --> 00:40:42,570 from the rest of the state on paying 746 00:40:42,570 --> 00:40:44,190 for the investment in the services 747 00:40:44,190 --> 00:40:46,330 that the Boston economy requires. 748 00:40:46,330 --> 00:40:48,690 So the point is, if you're trying 749 00:40:48,690 --> 00:40:53,270 to deal with the Baumol problem, and you are, you can be lucky 750 00:40:53,270 --> 00:40:54,260 and that's nice. 751 00:40:54,260 --> 00:40:55,640 And you should at least recognize 752 00:40:55,640 --> 00:40:56,750 that you're being lucky. 753 00:40:56,750 --> 00:41:00,740 But then you also have to say who are the beneficiaries? 754 00:41:00,740 --> 00:41:03,890 If I make up this fancy externality argument 755 00:41:03,890 --> 00:41:06,950 that it's good for society for there to be more transit, 756 00:41:06,950 --> 00:41:08,990 there must be some real human beings in back 757 00:41:08,990 --> 00:41:10,220 of that external benefit. 758 00:41:10,220 --> 00:41:12,030 I better figure out who they are. 759 00:41:12,030 --> 00:41:14,930 And at the very least, get them to support me politically, 760 00:41:14,930 --> 00:41:17,750 and preferably even willing to put some of their own money 761 00:41:17,750 --> 00:41:18,450 on the table. 762 00:41:18,450 --> 00:41:20,720 So it's kind of a thought process to go through. 763 00:41:23,970 --> 00:41:32,720 Another strategy that is often, maybe to greater degree 764 00:41:32,720 --> 00:41:38,590 described as a panacea, and that is well, let's contract out. 765 00:41:38,590 --> 00:41:43,690 These unions are, not to be pejorative, 766 00:41:43,690 --> 00:41:45,340 they're just too good at what they do. 767 00:41:45,340 --> 00:41:47,310 It's not that they are nasty people. 768 00:41:47,310 --> 00:41:49,694 That they've got leverage, and they're using it. 769 00:41:49,694 --> 00:41:50,860 They think that's their job. 770 00:41:50,860 --> 00:41:55,780 They're getting more wages and benefits for their employees. 771 00:41:55,780 --> 00:41:57,490 So why would you be surprised. 772 00:41:57,490 --> 00:42:00,310 But you're having a real problem. 773 00:42:00,310 --> 00:42:09,020 So if you contract out, maybe you won't pay as much 774 00:42:09,020 --> 00:42:14,190 of a Baumol premium. 775 00:42:14,190 --> 00:42:19,620 Now, deconstruct what I just said. 776 00:42:19,620 --> 00:42:21,610 Do you buy that? 777 00:42:21,610 --> 00:42:25,160 What if we contracted out all the bus service for the T 778 00:42:25,160 --> 00:42:28,440 to third party? 779 00:42:28,440 --> 00:42:32,222 So Paul Revere could run everything. 780 00:42:32,222 --> 00:42:37,442 AUDIENCE: [INAUDIBLE] So you'd have to bribe them somehow. 781 00:42:37,442 --> 00:42:39,900 You can't have-- you couldn't have one private service when 782 00:42:39,900 --> 00:42:41,910 the whole thing, because they'd just unionized 783 00:42:41,910 --> 00:42:43,630 to the private service. 784 00:42:43,630 --> 00:42:46,230 Unless there was some kind of right to work law 785 00:42:46,230 --> 00:42:48,500 that was passed [INAUDIBLE] in Massachusetts. 786 00:42:48,500 --> 00:42:53,680 So you'd have to like contract it out to 30 agencies. 787 00:42:53,680 --> 00:42:57,790 And they would also all have to have a different union 788 00:42:57,790 --> 00:42:59,280 [INAUDIBLE] random. 789 00:42:59,280 --> 00:43:02,770 Rather than all joining some one Transit Workers Union. 790 00:43:02,770 --> 00:43:05,870 I don't think there's any, now thinking it out, any way you 791 00:43:05,870 --> 00:43:09,230 could force them to do that. 792 00:43:09,230 --> 00:43:13,250 FREDERICK SALVUCCI: So you're saying 793 00:43:13,250 --> 00:43:18,042 if you can't do that it's of no value to contract out? 794 00:43:18,042 --> 00:43:19,750 AUDIENCE: I don't think it's of no value, 795 00:43:19,750 --> 00:43:21,710 but I think it's of marginal value. 796 00:43:24,650 --> 00:43:27,160 FREDERICK SALVUCCI: Anybody want to argue? 797 00:43:27,160 --> 00:43:28,990 You got a little more than that out of it? 798 00:43:33,459 --> 00:43:35,000 AUDIENCE: I think I know we're going. 799 00:43:35,000 --> 00:43:38,690 But still hopefully this is [INAUDIBLE] 800 00:43:38,690 --> 00:43:42,120 that you can sort of by contracting some of it out, 801 00:43:42,120 --> 00:43:44,385 you can have a check on the power of the unions. 802 00:43:44,385 --> 00:43:45,760 And sort of what you're saying is 803 00:43:45,760 --> 00:43:48,630 that you can have sort of two systems that 804 00:43:48,630 --> 00:43:54,010 keep each other in line with one system [INAUDIBLE].. 805 00:43:54,010 --> 00:43:56,940 I guess the problem, like the problem with unions 806 00:43:56,940 --> 00:43:59,760 is they're often not necessarily based on the company 807 00:43:59,760 --> 00:44:00,860 you work for. 808 00:44:00,860 --> 00:44:02,830 They're often based on a type of trade. 809 00:44:02,830 --> 00:44:05,910 So you could end up having two companies that 810 00:44:05,910 --> 00:44:08,540 run bus services, but actually they all 811 00:44:08,540 --> 00:44:10,100 destroy the bus [INAUDIBLE] 812 00:44:10,100 --> 00:44:12,016 And it's quite possible that in the short-term 813 00:44:12,016 --> 00:44:14,610 you might have more competition than longer-term [INAUDIBLE] 814 00:44:14,610 --> 00:44:17,920 basically [INAUDIBLE] 815 00:44:17,920 --> 00:44:20,440 FREDERICK SALVUCCI: So is this competition 816 00:44:20,440 --> 00:44:23,440 you're trying to get, is this all competition 817 00:44:23,440 --> 00:44:26,689 among rival workers? 818 00:44:26,689 --> 00:44:27,230 AUDIENCE: No. 819 00:44:27,230 --> 00:44:31,390 [INAUDIBLE] between [INAUDIBLE] work [INAUDIBLE] 820 00:44:31,390 --> 00:44:32,390 FREDERICK SALVUCCI: Yes. 821 00:44:32,390 --> 00:44:34,348 The companies are going to make profit on this. 822 00:44:34,348 --> 00:44:38,550 So it's not just the employees. 823 00:44:38,550 --> 00:44:43,140 It's also the private companies. 824 00:44:51,630 --> 00:44:57,140 So Javier runs the numbers. 825 00:44:57,140 --> 00:44:59,750 And looks at well, let's see there 826 00:44:59,750 --> 00:45:01,500 are a bunch of places in the United States 827 00:45:01,500 --> 00:45:03,540 that do contract out for service. 828 00:45:03,540 --> 00:45:10,050 And let's see if services that are contracted out cost less. 829 00:45:10,050 --> 00:45:13,110 Now, before I tell you what he found, 830 00:45:13,110 --> 00:45:16,010 what would you expect to find? 831 00:45:16,010 --> 00:45:18,890 A, how many of you think you would expect 832 00:45:18,890 --> 00:45:22,670 to find that it costs less to contract out 833 00:45:22,670 --> 00:45:24,575 than to do it all in-house? 834 00:45:24,575 --> 00:45:27,564 AUDIENCE: Is this across all state the same labor law? 835 00:45:27,564 --> 00:45:28,730 FREDERICK SALVUCCI: Do you-- 836 00:45:28,730 --> 00:45:29,630 all states. 837 00:45:29,630 --> 00:45:31,350 And we're just talking buses. 838 00:45:31,350 --> 00:45:33,990 We're not confusing it with rail, 839 00:45:33,990 --> 00:45:36,730 which is every city is a little bit different. 840 00:45:36,730 --> 00:45:38,000 It's just bus drivers. 841 00:45:38,000 --> 00:45:39,760 AUDIENCE: I'll go with [INAUDIBLE].. 842 00:45:39,760 --> 00:45:40,530 Cost less. 843 00:45:40,530 --> 00:45:41,821 FREDERICK SALVUCCI: Costs less. 844 00:45:41,821 --> 00:45:43,962 Anybody disagree? 845 00:45:43,962 --> 00:45:45,462 AUDIENCE: Yeah, I think it has more. 846 00:45:45,462 --> 00:45:47,070 I think it probably costs way more. 847 00:45:47,070 --> 00:45:49,209 FREDERICK SALVUCCI: Cost more to contract out? 848 00:45:49,209 --> 00:45:50,000 That's interesting. 849 00:45:50,000 --> 00:45:50,500 Why? 850 00:45:52,980 --> 00:45:57,750 AUDIENCE: Because once you contract it out, you have-- 851 00:45:57,750 --> 00:45:59,890 you don't want to bring it back in-house. 852 00:45:59,890 --> 00:46:01,711 And potentially in a lot of these markets 853 00:46:01,711 --> 00:46:03,210 you don't actually have competition. 854 00:46:03,210 --> 00:46:04,420 You have one player. 855 00:46:04,420 --> 00:46:08,560 So that one player you'd be subsidizing more, 856 00:46:08,560 --> 00:46:11,400 potentially pay more rent to the employer rather than 857 00:46:11,400 --> 00:46:12,600 the employees. 858 00:46:12,600 --> 00:46:16,380 Because that one employer has a lot of leverage over you 859 00:46:16,380 --> 00:46:18,590 to drive up the amount you get paid overtime. 860 00:46:18,590 --> 00:46:19,590 FREDERICK SALVUCCI: Yes. 861 00:46:19,590 --> 00:46:22,530 So that's very insightful. 862 00:46:22,530 --> 00:46:24,930 And that's fairly accurate. 863 00:46:24,930 --> 00:46:28,590 What the data shows that Javier pulled together 864 00:46:28,590 --> 00:46:34,680 is that contracting out does reduce cost somewhat. 865 00:46:34,680 --> 00:46:41,100 But that in comparison to places that provide all bus service 866 00:46:41,100 --> 00:46:43,350 with in-house employees. 867 00:46:43,350 --> 00:46:48,510 But that the cost performance is consistently better 868 00:46:48,510 --> 00:46:52,120 in those places that do a combination of contracting out 869 00:46:52,120 --> 00:46:53,520 and in-house. 870 00:46:53,520 --> 00:46:56,057 And that's probably partly because once the contractors 871 00:46:56,057 --> 00:46:58,390 figure out you don't know how to do it yourself anymore. 872 00:46:58,390 --> 00:46:59,820 They get you over a barrel. 873 00:46:59,820 --> 00:47:02,220 And they take advantage of the leverage. 874 00:47:02,220 --> 00:47:05,970 And it's partly because you can't manage something 875 00:47:05,970 --> 00:47:07,740 if you don't know how to do it yourself. 876 00:47:07,740 --> 00:47:10,980 So when you're contracting out, the transit manager 877 00:47:10,980 --> 00:47:13,510 has to know how to manage that contract. 878 00:47:13,510 --> 00:47:17,640 And if you're not doing anything in-house that's a weakness. 879 00:47:17,640 --> 00:47:23,250 So that indicates that the mixed strategy seems better than all 880 00:47:23,250 --> 00:47:25,220 of one or all of the other. 881 00:47:25,220 --> 00:47:26,850 But if you had to choose, you might 882 00:47:26,850 --> 00:47:29,820 choose for the contracted model based 883 00:47:29,820 --> 00:47:31,230 on the way the numbers look. 884 00:47:31,230 --> 00:47:36,390 But the half and half or the part that, some of each, 885 00:47:36,390 --> 00:47:39,744 seems to be a better strategy. 886 00:47:39,744 --> 00:47:45,230 AUDIENCE: Is it also the case that maybe some services are 887 00:47:45,230 --> 00:47:48,045 going to be run more efficiently by contractors, 888 00:47:48,045 --> 00:47:52,715 whereas some services can be run more efficiently in-house? 889 00:47:52,715 --> 00:47:54,302 Plus it makes sense to contract out 890 00:47:54,302 --> 00:47:58,810 when those services that can be done more efficiently that way. 891 00:48:02,690 --> 00:48:05,030 FREDERICK SALVUCCI: It's possible, but I don't think so. 892 00:48:05,030 --> 00:48:09,440 I mean a bad, and unscrupulous manager, 893 00:48:09,440 --> 00:48:13,070 or a set of unscrupulous employees 894 00:48:13,070 --> 00:48:16,400 could, for example, look at a bus 895 00:48:16,400 --> 00:48:22,190 route that is not very full. 896 00:48:22,190 --> 00:48:25,430 But there's a policy headway that says well 897 00:48:25,430 --> 00:48:28,370 even if the bus isn't full we should not 898 00:48:28,370 --> 00:48:33,350 provide less than a bus every 15 minutes in this corridor. 899 00:48:33,350 --> 00:48:39,240 An unscrupulous manager or an unscrupulous union might say, 900 00:48:39,240 --> 00:48:43,470 all these people will fit in a bus every 30 minutes, screw it. 901 00:48:43,470 --> 00:48:45,590 We're just going to run half the service. 902 00:48:45,590 --> 00:48:47,910 And if they don't get caught they'll pocket the money 903 00:48:47,910 --> 00:48:49,870 if it's a contractor. 904 00:48:49,870 --> 00:48:53,490 And if it's the workers, they'll just play cards and not 905 00:48:53,490 --> 00:48:54,680 run half the routes. 906 00:48:54,680 --> 00:49:06,094 In Puerto Rico when we were doing work there the story was, 907 00:49:06,094 --> 00:49:07,510 I don't know if you have verified. 908 00:49:07,510 --> 00:49:11,500 Discovery was one for me, one for the company. 909 00:49:11,500 --> 00:49:14,470 The schedule says there's a bus every 15 minutes, 910 00:49:14,470 --> 00:49:15,860 we run one every 30 minutes. 911 00:49:15,860 --> 00:49:18,940 That's good enough, and we play dominoes in between. 912 00:49:18,940 --> 00:49:20,638 Have you heard the story? 913 00:49:20,638 --> 00:49:25,618 AUDIENCE: Well when I consulted for them and with [INAUDIBLE] 914 00:49:25,618 --> 00:49:30,750 that was the case [INAUDIBLE] The reality is that they didn't 915 00:49:30,750 --> 00:49:35,210 have the buses to operate, no buses in good condition. 916 00:49:35,210 --> 00:49:38,070 So they only had half the fleet. 917 00:49:38,070 --> 00:49:43,624 So we couldn't pull out [INAUDIBLE] Sot 918 00:49:43,624 --> 00:49:45,556 it ended up being what you said. 919 00:49:45,556 --> 00:49:46,094 [INAUDIBLE] 920 00:49:46,094 --> 00:49:48,010 FREDERICK SALVUCCI: So anyway what I'm saying, 921 00:49:48,010 --> 00:49:50,220 though, is that you could view it 922 00:49:50,220 --> 00:49:55,380 as a kind of corrupt practice by a contractor. 923 00:49:55,380 --> 00:49:58,320 Or you could view it as an unethical practice by workers. 924 00:49:58,320 --> 00:50:06,270 But there's leverage in a market where policy wants a better 925 00:50:06,270 --> 00:50:11,430 level of service than the service requires 926 00:50:11,430 --> 00:50:12,390 in market terms. 927 00:50:12,390 --> 00:50:14,640 There aren't enough people paying fares. 928 00:50:14,640 --> 00:50:16,470 Because you lose some riders when you 929 00:50:16,470 --> 00:50:19,410 mistreat your riders that way. 930 00:50:19,410 --> 00:50:21,780 But if your fares are low, and you're 931 00:50:21,780 --> 00:50:27,780 mostly dependent on subsidy, then your customer, 932 00:50:27,780 --> 00:50:30,030 if you will, whether you are employees 933 00:50:30,030 --> 00:50:32,370 or whether you're a company, your customer 934 00:50:32,370 --> 00:50:36,060 is the agency paying you with subsidy. 935 00:50:36,060 --> 00:50:38,430 Your customer is not the rider who's 936 00:50:38,430 --> 00:50:40,410 paying a fare to get a service. 937 00:50:40,410 --> 00:50:48,180 So you've changed the dynamic of who your institution is trying 938 00:50:48,180 --> 00:50:50,130 to please in its behavior. 939 00:50:50,130 --> 00:50:54,840 And workers aren't particularly better than companies 940 00:50:54,840 --> 00:50:57,800 in exploiting situations like that. 941 00:50:57,800 --> 00:50:59,400 It happens both ways. 942 00:50:59,400 --> 00:51:07,710 So the theory is that you won't get the benefits 943 00:51:07,710 --> 00:51:12,520 unless there is competition among different companies. 944 00:51:12,520 --> 00:51:14,880 If you go to private contracting. 945 00:51:14,880 --> 00:51:17,130 Even if you only do partial contracting. 946 00:51:17,130 --> 00:51:18,682 You look at the data and say well, 947 00:51:18,682 --> 00:51:20,140 I'm not going to make that mistake. 948 00:51:20,140 --> 00:51:21,135 I'm going to do some. 949 00:51:21,135 --> 00:51:25,170 You still would like to have multiple companies. 950 00:51:25,170 --> 00:51:29,580 Well, in some areas there aren't multiple companies. 951 00:51:29,580 --> 00:51:32,580 You can't just will them into existence. 952 00:51:32,580 --> 00:51:38,730 And if your objective in the competition 953 00:51:38,730 --> 00:51:42,930 is to minimize the amount you're paying in subsidy, 954 00:51:42,930 --> 00:51:46,170 you may make this such a marginal business 955 00:51:46,170 --> 00:51:49,950 that it's quite unattractive for people to come into it. 956 00:51:49,950 --> 00:51:56,820 So if you've got a strategy to control Baumol's disease based 957 00:51:56,820 --> 00:52:02,580 on contracting out, you can't be excessively cost conscious 958 00:52:02,580 --> 00:52:04,650 or you will destroy the incentive 959 00:52:04,650 --> 00:52:07,000 for people to be part of it. 960 00:52:07,000 --> 00:52:09,790 So you've got to think about why you're doing it. 961 00:52:09,790 --> 00:52:13,410 Now, if you're doing it to improve 962 00:52:13,410 --> 00:52:18,870 the quality of the service, and to provide more service, 963 00:52:18,870 --> 00:52:28,090 then you may be able to have a growing business opportunity. 964 00:52:28,090 --> 00:52:32,100 So that more companies will want to come into the area 965 00:52:32,100 --> 00:52:34,540 because it looks like a good place to do business. 966 00:52:34,540 --> 00:52:37,430 But if it's a kind of stable, 10 years from now 967 00:52:37,430 --> 00:52:40,100 is the same number of riders is today, 968 00:52:40,100 --> 00:52:41,900 it's a pretty dead end business. 969 00:52:41,900 --> 00:52:46,130 So you're not going to really get top managers trying 970 00:52:46,130 --> 00:52:50,480 to provide better service for less money, 971 00:52:50,480 --> 00:52:53,480 either in the public sector or when you contract out. 972 00:52:53,480 --> 00:52:55,610 But there's a more fundamental theoretical thing. 973 00:52:55,610 --> 00:52:58,890 And I'm going on too long about Baumol. 974 00:52:58,890 --> 00:53:02,480 But what's the maximum you would expect 975 00:53:02,480 --> 00:53:08,490 to get out of a strategy of contracting out and getting 976 00:53:08,490 --> 00:53:10,560 competition? 977 00:53:10,560 --> 00:53:12,870 Would you totally offset the Baumol's disease? 978 00:53:15,525 --> 00:53:17,440 AUDIENCE: Just delay. 979 00:53:17,440 --> 00:53:20,946 FREDERICK SALVUCCI: So why are you saying no, Leo? 980 00:53:20,946 --> 00:53:29,545 AUDIENCE: Because [INAUDIBLE] People [INAUDIBLE] 981 00:53:29,545 --> 00:53:33,330 That's the way I feel [INAUDIBLE] actually brings 982 00:53:33,330 --> 00:53:36,290 a lot of the fighting between the two parties. 983 00:53:36,290 --> 00:53:41,394 You have to realize that they don't [INAUDIBLE].. 984 00:53:41,394 --> 00:53:43,560 FREDERICK SALVUCCI: There's some of that but there's 985 00:53:43,560 --> 00:53:45,390 a more fundamental issue. 986 00:53:45,390 --> 00:53:48,690 The theory that Baumol put forward 987 00:53:48,690 --> 00:53:50,430 is that in order to attract labor 988 00:53:50,430 --> 00:53:52,890 you're going to have to pay the prevailing 989 00:53:52,890 --> 00:53:54,660 wage in the metropolitan area. 990 00:53:54,660 --> 00:53:57,620 And therefore, you are stuck with costs 991 00:53:57,620 --> 00:54:00,330 to grow faster than the rate of inflation. 992 00:54:00,330 --> 00:54:02,820 You can have all the competition in the world. 993 00:54:02,820 --> 00:54:06,810 It's not going to change the prevailing wage in a Baumol 994 00:54:06,810 --> 00:54:09,390 disease industry. 995 00:54:09,390 --> 00:54:13,680 You are going to have to pay the Baumol 996 00:54:13,680 --> 00:54:16,530 premium that Baumol identified. 997 00:54:16,530 --> 00:54:20,160 What you may escape is the premium 998 00:54:20,160 --> 00:54:23,820 on top of Baumol that Javier identified, 999 00:54:23,820 --> 00:54:26,010 which is coming out of the political leverage. 1000 00:54:26,010 --> 00:54:28,220 As opposed to the workplace leverage 1001 00:54:28,220 --> 00:54:33,800 that unions and contractors have in the legislature 1002 00:54:33,800 --> 00:54:36,490 on affecting the-- 1003 00:54:36,490 --> 00:54:41,420 So you shouldn't, theoretically, expect no matter 1004 00:54:41,420 --> 00:54:43,730 how skillful you are with contracting out, 1005 00:54:43,730 --> 00:54:46,220 no matter how much competition you get, 1006 00:54:46,220 --> 00:54:50,990 you will still need to pay something like the prevailing 1007 00:54:50,990 --> 00:54:53,030 wage or you won't have workers. 1008 00:54:53,030 --> 00:54:54,887 If you pay too little, you'll get workers 1009 00:54:54,887 --> 00:54:57,470 with very bad habits, who don't show up on Monday because they 1010 00:54:57,470 --> 00:54:58,910 went drinking over the weekend. 1011 00:54:58,910 --> 00:55:01,610 And you start providing a lousy service. 1012 00:55:01,610 --> 00:55:10,130 So you are stuck with the problem that Baumol identified. 1013 00:55:10,130 --> 00:55:13,220 What you may reduce is the premium 1014 00:55:13,220 --> 00:55:16,370 on top of that that comes from the political complication, 1015 00:55:16,370 --> 00:55:20,050 the political power of labor, and companies 1016 00:55:20,050 --> 00:55:25,370 in the legislative process that is providing the subsidy, which 1017 00:55:25,370 --> 00:55:27,650 is essential to deal with it. 1018 00:55:27,650 --> 00:55:31,310 The first practical question for Baumol's disease industry 1019 00:55:31,310 --> 00:55:32,990 is where are you going to get the money? 1020 00:55:32,990 --> 00:55:34,860 You need the subsidy. 1021 00:55:34,860 --> 00:55:36,380 And then the process for getting it 1022 00:55:36,380 --> 00:55:37,790 has these other complications. 1023 00:55:37,790 --> 00:55:39,410 Yes? 1024 00:55:39,410 --> 00:55:40,910 AUDIENCE: So basically you're saying 1025 00:55:40,910 --> 00:55:42,368 it's the government themselves that 1026 00:55:42,368 --> 00:55:44,840 pay the subsidy to the contractor to induce them 1027 00:55:44,840 --> 00:55:48,500 to participate in the market? 1028 00:55:48,500 --> 00:55:50,814 Because basically the private companies 1029 00:55:50,814 --> 00:55:52,230 aren't subject to Baumol's disease 1030 00:55:52,230 --> 00:55:57,330 because they wouldn't take the contractor to do the business, 1031 00:55:57,330 --> 00:56:01,080 unless the government pays them [INAUDIBLE] 1032 00:56:01,080 --> 00:56:02,520 counteract Baumol's disease. 1033 00:56:02,520 --> 00:56:03,010 FREDERICK SALVUCCI: Right. 1034 00:56:03,010 --> 00:56:04,930 So even if there's lots of competition, 1035 00:56:04,930 --> 00:56:06,880 and there are 10 different companies, 1036 00:56:06,880 --> 00:56:08,410 they're not going to bid below what 1037 00:56:08,410 --> 00:56:10,730 it's going to cost them to offer the service. 1038 00:56:10,730 --> 00:56:13,240 They're going to have to pay the prevailing wage. 1039 00:56:13,240 --> 00:56:16,510 So don't be surprised over a decade when 1040 00:56:16,510 --> 00:56:17,980 you see that that's gone up faster 1041 00:56:17,980 --> 00:56:19,510 than the rate of inflation. 1042 00:56:19,510 --> 00:56:23,020 If you should define success as being, 1043 00:56:23,020 --> 00:56:25,960 if you would maintain that growth 1044 00:56:25,960 --> 00:56:29,030 at or below the rate of inflation, 1045 00:56:29,030 --> 00:56:33,030 in the prevailing wage, then you're doing something right. 1046 00:56:33,030 --> 00:56:36,850 Now, if simultaneously the region is growing, 1047 00:56:36,850 --> 00:56:38,710 so are these external benefits. 1048 00:56:38,710 --> 00:56:42,220 And you're able to actually charge more for the service 1049 00:56:42,220 --> 00:56:45,400 as they have been at transport for London, 1050 00:56:45,400 --> 00:56:48,580 then you may actually begin to offset 1051 00:56:48,580 --> 00:56:52,480 even that part of the problem that Baumol identified. 1052 00:56:52,480 --> 00:56:56,050 But the point is that contracting out 1053 00:56:56,050 --> 00:57:00,170 is an interesting strategy, but it's not a panacea. 1054 00:57:00,170 --> 00:57:04,570 It's unlikely to get you below the Baumol threshold, 1055 00:57:04,570 --> 00:57:05,270 so to speak. 1056 00:57:05,270 --> 00:57:07,000 But it may get you-- 1057 00:57:07,000 --> 00:57:10,180 it may help you reduce this premium that you'd otherwise 1058 00:57:10,180 --> 00:57:13,000 be condemned to pay. 1059 00:57:13,000 --> 00:57:19,890 So this diagram is just a way of saying 1060 00:57:19,890 --> 00:57:23,100 once you're running a business subsidized, 1061 00:57:23,100 --> 00:57:26,520 your organization chart is really complicated. 1062 00:57:26,520 --> 00:57:29,610 I mean in Massachusetts you've got a governor, 1063 00:57:29,610 --> 00:57:32,160 the Secretary of Transportation serves at the pleasure 1064 00:57:32,160 --> 00:57:33,660 of the governor. 1065 00:57:33,660 --> 00:57:34,970 There's a board of directors. 1066 00:57:34,970 --> 00:57:36,053 There's a general manager. 1067 00:57:38,680 --> 00:57:42,230 In some, just within Massachusetts, 1068 00:57:42,230 --> 00:57:45,217 there have been times when the general managers served 1069 00:57:45,217 --> 00:57:46,550 at the pleasure of the governor. 1070 00:57:46,550 --> 00:57:48,758 There have been other times when the general managers 1071 00:57:48,758 --> 00:57:52,080 at a contract from the board. 1072 00:57:52,080 --> 00:57:56,030 So if you've got a situation where there's 1073 00:57:56,030 --> 00:58:00,260 a secretary, a board, and the general manager, now 1074 00:58:00,260 --> 00:58:00,980 who's the boss? 1075 00:58:00,980 --> 00:58:02,000 Is that the secretary? 1076 00:58:02,000 --> 00:58:03,920 Is it the board? 1077 00:58:03,920 --> 00:58:08,030 That general manager then has to manage this production system. 1078 00:58:08,030 --> 00:58:09,620 Has to worry about customers. 1079 00:58:09,620 --> 00:58:11,630 Has to worry about fares. 1080 00:58:11,630 --> 00:58:13,720 But he's got to deal with labor. 1081 00:58:13,720 --> 00:58:15,800 Needs support for the taxes. 1082 00:58:15,800 --> 00:58:16,870 Who controls that? 1083 00:58:16,870 --> 00:58:19,150 Congress, the legislature? 1084 00:58:19,150 --> 00:58:24,230 Labors got more access to those sources of power 1085 00:58:24,230 --> 00:58:26,797 than the management structure does. 1086 00:58:26,797 --> 00:58:29,130 The governor who's supposed to be on top of all of this, 1087 00:58:29,130 --> 00:58:31,380 he may be from a different party than the legislature. 1088 00:58:31,380 --> 00:58:34,910 Legislature may not even like the guy, so he's not much use. 1089 00:58:34,910 --> 00:58:38,270 What's going to get you votes in the legislature 1090 00:58:38,270 --> 00:58:42,591 for some law that's going to help you run a better transit 1091 00:58:42,591 --> 00:58:43,090 system? 1092 00:58:43,090 --> 00:58:45,850 It might be capital to buy new buses. 1093 00:58:45,850 --> 00:58:48,720 Might be just the operating subsidy. 1094 00:58:48,720 --> 00:58:50,760 Labor's a big piece of this. 1095 00:58:50,760 --> 00:58:55,500 So you've got to recognize the kind of power 1096 00:58:55,500 --> 00:58:57,840 and influence they're going to have. 1097 00:58:57,840 --> 00:59:01,620 So let's talk about the history of the labor movement. 1098 00:59:01,620 --> 00:59:04,290 Talked last time a little bit about the commons union, 1099 00:59:04,290 --> 00:59:05,310 the eight hour day. 1100 00:59:11,100 --> 00:59:15,290 What's the story with immigrants and labor? 1101 00:59:15,290 --> 00:59:22,300 We all holding hands, singing solidarity forever, 1102 00:59:22,300 --> 00:59:27,940 American-born immigrants all loving each other? 1103 00:59:27,940 --> 00:59:30,732 AUDIENCE: Immigrants always get the scraps of work. 1104 00:59:30,732 --> 00:59:32,190 FREDERICK SALVUCCI: Yes, immigrants 1105 00:59:32,190 --> 00:59:33,200 are the last ones in. 1106 00:59:33,200 --> 00:59:38,160 So whoever is the earlier group tends to dominate the jobs. 1107 00:59:38,160 --> 00:59:40,110 Tend to dominate the management structure. 1108 00:59:40,110 --> 00:59:44,340 Tends to dominate the power positions within the union. 1109 00:59:44,340 --> 00:59:48,720 So there's not this-- 1110 00:59:48,720 --> 00:59:51,600 there's not real solidarity within the union. 1111 00:59:51,600 --> 00:59:53,970 You get factions within the union. 1112 00:59:53,970 --> 00:59:59,400 And the newest immigrants are usually underrepresented, 1113 00:59:59,400 --> 01:00:04,560 sometimes dramatically so by the union. 1114 01:00:04,560 --> 01:00:09,400 We had a situation at the T, where through a fluke 1115 01:00:09,400 --> 01:00:12,390 we were able to hire part-time workers. 1116 01:00:12,390 --> 01:00:16,490 This piece of legislation went through. 1117 01:00:16,490 --> 01:00:19,700 And the pay scale for the part-time workers without it 1118 01:00:19,700 --> 01:00:21,590 was outrageously low, and did not 1119 01:00:21,590 --> 01:00:24,440 include health care benefits. 1120 01:00:24,440 --> 01:00:25,620 Well, I was really offended. 1121 01:00:25,620 --> 01:00:26,870 I said, we're a public agency. 1122 01:00:26,870 --> 01:00:30,740 We're treating these people horribly. 1123 01:00:30,740 --> 01:00:35,000 And we don't want them to hate us. 1124 01:00:35,000 --> 01:00:37,520 I would hate us if I had to work these hours 1125 01:00:37,520 --> 01:00:41,540 without a decent pay, without health care benefits. 1126 01:00:41,540 --> 01:00:46,260 Let's at least pay health care benefits. 1127 01:00:46,260 --> 01:00:48,990 Union says no, you can't do that. 1128 01:00:48,990 --> 01:00:52,860 You can't confer a benefit except through the bargaining 1129 01:00:52,860 --> 01:00:54,310 process. 1130 01:00:54,310 --> 01:00:58,200 Oh, well surely you agree that your dues paying members 1131 01:00:58,200 --> 01:00:59,740 should have health care benefits. 1132 01:00:59,740 --> 01:01:00,780 Nope, we don't care. 1133 01:01:03,870 --> 01:01:05,079 You're taking their dues. 1134 01:01:05,079 --> 01:01:06,495 You're supposed to represent them. 1135 01:01:06,495 --> 01:01:06,870 Nope. 1136 01:01:06,870 --> 01:01:08,578 You're going to have to give us something 1137 01:01:08,578 --> 01:01:11,160 if you want us to allow you to pay benefits 1138 01:01:11,160 --> 01:01:14,280 to those part-time employees. 1139 01:01:14,280 --> 01:01:16,980 I mean you'd like to strangle them, 1140 01:01:16,980 --> 01:01:22,347 but there are rules to bargaining, and so 1141 01:01:22,347 --> 01:01:27,430 [INAUDIBLE] that are all about leverage, 1142 01:01:27,430 --> 01:01:30,400 and very little about public policy. 1143 01:01:30,400 --> 01:01:34,710 And your first expectation about how people will behave 1144 01:01:34,710 --> 01:01:36,860 is very often not the case. 1145 01:01:36,860 --> 01:01:40,390 There are these sort of perverse incentives. 1146 01:01:40,390 --> 01:01:44,800 And the first preoccupation on the Union side 1147 01:01:44,800 --> 01:01:47,930 is usually to get re-elected. 1148 01:01:47,930 --> 01:01:49,670 And the more democratic the union-- 1149 01:01:49,670 --> 01:01:51,110 do you think democratic unions are 1150 01:01:51,110 --> 01:01:54,440 better than autocratic unions? 1151 01:01:54,440 --> 01:01:57,290 How many people vote for democratic unions? 1152 01:01:57,290 --> 01:01:59,180 AUDIENCE: Can you explain the difference? 1153 01:01:59,180 --> 01:02:00,680 FREDERICK SALVUCCI: Democratic union 1154 01:02:00,680 --> 01:02:03,800 is one where there are elections every couple of years. 1155 01:02:03,800 --> 01:02:06,860 And often the president of the Union 1156 01:02:06,860 --> 01:02:08,690 loses, and a new president comes in. 1157 01:02:08,690 --> 01:02:12,020 And there's a real give and take and debate. 1158 01:02:12,020 --> 01:02:15,800 So in the autocratic union there's 1159 01:02:15,800 --> 01:02:19,910 a family that's been the president and business 1160 01:02:19,910 --> 01:02:21,990 agent for the past 25 years. 1161 01:02:21,990 --> 01:02:27,350 And when the old man gets old, his nephew gets the job. 1162 01:02:27,350 --> 01:02:29,970 So you got both kinds of unions around here. 1163 01:02:29,970 --> 01:02:32,818 Which one do you think is preferable? 1164 01:02:32,818 --> 01:02:35,108 AUDIENCE: [INAUDIBLE] better for the workers or profit 1165 01:02:35,108 --> 01:02:37,286 [INAUDIBLE] 1166 01:02:37,286 --> 01:02:38,660 FREDERICK SALVUCCI: Well, either. 1167 01:02:38,660 --> 01:02:39,800 Take it separately. 1168 01:02:39,800 --> 01:02:40,939 Better for the workers. 1169 01:02:40,939 --> 01:02:42,980 AUDIENCE: Just because you're asking the question 1170 01:02:42,980 --> 01:02:44,420 I'm going to go with autocrat. 1171 01:02:44,420 --> 01:02:46,820 I think it's a tie. 1172 01:02:46,820 --> 01:02:50,960 FREDERICK SALVUCCI: Yes, well the democratic union-- 1173 01:02:50,960 --> 01:02:54,200 the union is-- the union leader is 1174 01:02:54,200 --> 01:02:57,200 so afraid he'll lose the next election, 1175 01:02:57,200 --> 01:02:59,790 he won't make any decisions. 1176 01:02:59,790 --> 01:03:06,080 So we, at one point, had hired smart people 1177 01:03:06,080 --> 01:03:08,450 like John Attanucci to figure out 1178 01:03:08,450 --> 01:03:09,872 better ways of producing stuff. 1179 01:03:09,872 --> 01:03:11,330 And they run these numbers and say, 1180 01:03:11,330 --> 01:03:17,300 hey, we can structure the work for the rail side 1181 01:03:17,300 --> 01:03:22,000 into four 10 hour days, a 40 hour week. 1182 01:03:22,000 --> 01:03:23,590 People will get long weekends. 1183 01:03:23,590 --> 01:03:25,810 We can make the numbers work. 1184 01:03:25,810 --> 01:03:28,900 It'll save us money, and the employees 1185 01:03:28,900 --> 01:03:33,299 will make the same money and have three day weekends. 1186 01:03:33,299 --> 01:03:34,840 And they sort of test it with people, 1187 01:03:34,840 --> 01:03:38,200 and the workers really like this idea. 1188 01:03:38,200 --> 01:03:41,390 Union wouldn't accept it, because they were afraid 1189 01:03:41,390 --> 01:03:43,580 that it would become an issue. 1190 01:03:43,580 --> 01:03:46,280 So you couldn't even give them something 1191 01:03:46,280 --> 01:03:50,180 that you knew the workers wanted because they were so weak. 1192 01:03:50,180 --> 01:03:51,740 They were afraid to make a deal. 1193 01:03:51,740 --> 01:03:53,840 You get a more autocratic union, and there 1194 01:03:53,840 --> 01:03:56,372 are some not so nice things about the autocrats, 1195 01:03:56,372 --> 01:03:57,830 but they're willing to make a deal. 1196 01:03:57,830 --> 01:04:00,260 They know they're going to be president next year. 1197 01:04:00,260 --> 01:04:03,034 They've got enough confidence they're going to get reelected, 1198 01:04:03,034 --> 01:04:04,950 that they're better able to step back and say, 1199 01:04:04,950 --> 01:04:07,040 well, what's the long view here. 1200 01:04:07,040 --> 01:04:11,150 And they may be exercising that power, on a good day, 1201 01:04:11,150 --> 01:04:14,780 they're exercising that power on behalf of the workers. 1202 01:04:14,780 --> 01:04:19,790 But they're not so hypersensitive to a faction 1203 01:04:19,790 --> 01:04:23,210 that they're unwilling to make a deal. 1204 01:04:23,210 --> 01:04:26,030 In the dynamic of the union, the union 1205 01:04:26,030 --> 01:04:28,340 is just like any other organization. 1206 01:04:28,340 --> 01:04:31,100 The people who count are the people who show up. 1207 01:04:31,100 --> 01:04:37,010 So you have a union meeting once a month, who shows up? 1208 01:04:37,010 --> 01:04:38,680 A small subset of people. 1209 01:04:38,680 --> 01:04:40,520 Everybody else-- Everyone else is 1210 01:04:40,520 --> 01:04:43,079 out bowling or watching television, or doing 1211 01:04:43,079 --> 01:04:44,120 whatever they like to do. 1212 01:04:44,120 --> 01:04:45,453 They don't go to union meetings. 1213 01:04:45,453 --> 01:04:47,960 So you got to take care of the ones who 1214 01:04:47,960 --> 01:04:50,900 show up at the meetings, because that's the attentive public. 1215 01:04:50,900 --> 01:04:53,300 They're the ones that are paying attention. 1216 01:04:53,300 --> 01:04:58,400 So the dynamic within the union may appear to be democratic, 1217 01:04:58,400 --> 01:05:02,360 but it's also dominated by small factions 1218 01:05:02,360 --> 01:05:06,430 whose interests may diverge from that of the larger group. 1219 01:05:06,430 --> 01:05:10,070 And especially if there has been a period of ethnic change. 1220 01:05:10,070 --> 01:05:13,550 Typically, the dominant group in the union 1221 01:05:13,550 --> 01:05:19,070 reflects the ethnic composition of 25 years ago. 1222 01:05:19,070 --> 01:05:24,861 And the smarter ones realize that they better pay attention 1223 01:05:24,861 --> 01:05:26,360 to the new workers, or they're going 1224 01:05:26,360 --> 01:05:29,270 to lose their positions more quickly. 1225 01:05:29,270 --> 01:05:31,600 But the nastier ones just say, the hell with it. 1226 01:05:31,600 --> 01:05:33,174 I'm going to take care of my people, 1227 01:05:33,174 --> 01:05:34,340 and I don't care about them. 1228 01:05:34,340 --> 01:05:39,590 So democracy is a mixed blessing sometimes. 1229 01:05:39,590 --> 01:05:42,710 But it always makes it interesting and complicated. 1230 01:05:45,460 --> 01:05:50,570 Go to Item H because we're running out of time here. 1231 01:05:50,570 --> 01:05:53,755 World War II labor shortages, wage and price control. 1232 01:05:59,090 --> 01:06:03,500 Do any of you know the story of the World War II 1233 01:06:03,500 --> 01:06:04,882 wage and price controls? 1234 01:06:04,882 --> 01:06:05,840 What was going on then? 1235 01:06:05,840 --> 01:06:07,850 AUDIENCE: Wages were frozen. 1236 01:06:07,850 --> 01:06:08,810 Yes. 1237 01:06:08,810 --> 01:06:12,350 So consumption of products was also frozen. 1238 01:06:12,350 --> 01:06:14,660 FREDERICK SALVUCCI: Yes, because the government was-- 1239 01:06:14,660 --> 01:06:16,010 AUDIENCE: [INAUDIBLE] war. 1240 01:06:16,010 --> 01:06:18,620 FREDERICK SALVUCCI: Yes, and the government was afraid of, 1241 01:06:18,620 --> 01:06:21,140 that the shortages would lead to price spikes, 1242 01:06:21,140 --> 01:06:23,060 and there'd a huge political backlash. 1243 01:06:23,060 --> 01:06:26,760 So they put in wage and price controls. 1244 01:06:26,760 --> 01:06:29,150 So the industries that were producing, particularly 1245 01:06:29,150 --> 01:06:31,310 for the war effort, because that's 1246 01:06:31,310 --> 01:06:33,560 where the was a lot of money to be made, 1247 01:06:33,560 --> 01:06:35,810 needed to attract workers. 1248 01:06:35,810 --> 01:06:41,219 But they couldn't offer higher wages under the rules. 1249 01:06:41,219 --> 01:06:43,010 They started offering health care benefits. 1250 01:06:43,010 --> 01:06:45,800 It was the only way they could compete. 1251 01:06:45,800 --> 01:06:49,610 At the end of the war, some of the socialist labor leaders, 1252 01:06:49,610 --> 01:06:52,370 Walter Reuther and others, looking 1253 01:06:52,370 --> 01:06:55,860 at what was going on in Europe said, 1254 01:06:55,860 --> 01:06:58,070 well, this is a stupid way to fund health care. 1255 01:06:58,070 --> 01:06:59,730 Let's have health care for everybody, 1256 01:06:59,730 --> 01:07:02,610 and let's do it in an across the board way. 1257 01:07:02,610 --> 01:07:06,970 And the big businesses said no, we like it this way, 1258 01:07:06,970 --> 01:07:10,410 because this gives us an advantage that our workers are 1259 01:07:10,410 --> 01:07:12,660 getting health benefits, and the other aren't. 1260 01:07:12,660 --> 01:07:14,250 And that's to our benefit. 1261 01:07:14,250 --> 01:07:18,870 So these bastards who yap about out-of-control health care 1262 01:07:18,870 --> 01:07:23,100 costs, the reason we've got this backward system we've got 1263 01:07:23,100 --> 01:07:26,010 is because of their greed, and their unwillingness 1264 01:07:26,010 --> 01:07:28,710 in the post-world War II environment, when you really 1265 01:07:28,710 --> 01:07:31,590 could have gotten a much broader base Medicare 1266 01:07:31,590 --> 01:07:33,712 for all kind of approach. 1267 01:07:33,712 --> 01:07:34,920 They didn't want it that way. 1268 01:07:34,920 --> 01:07:36,503 Now they complain that they're paying. 1269 01:07:36,503 --> 01:07:38,160 And I don't blame them for complaining. 1270 01:07:38,160 --> 01:07:41,040 The system now, it's kind of weird. 1271 01:07:41,040 --> 01:07:46,680 But it was a product of the peculiar politics 1272 01:07:46,680 --> 01:07:49,420 of that point in time. 1273 01:07:49,420 --> 01:07:54,230 And you also do get, theoretically, 1274 01:07:54,230 --> 01:07:59,150 it's possible that labor unions might 1275 01:07:59,150 --> 01:08:04,640 like the idea that only union members get health care 1276 01:08:04,640 --> 01:08:05,330 benefits. 1277 01:08:05,330 --> 01:08:08,000 And that they're not conferred on the whole population, 1278 01:08:08,000 --> 01:08:11,270 because it's another reason to join the union. 1279 01:08:11,270 --> 01:08:14,390 Fortunately the unions aren't that narrow. 1280 01:08:14,390 --> 01:08:16,970 And they tend to be a little bit more progressive. 1281 01:08:16,970 --> 01:08:21,380 But they're acting against their own interests, in a sense. 1282 01:08:21,380 --> 01:08:24,920 It does confer some advantage on them 1283 01:08:24,920 --> 01:08:28,370 if health care has to be bargained for. 1284 01:08:28,370 --> 01:08:31,069 It's a reason to join a union, and be active in the union. 1285 01:08:31,069 --> 01:08:33,319 So you get all these perverse incentives that 1286 01:08:33,319 --> 01:08:35,810 come out of this kind of stuff. 1287 01:08:35,810 --> 01:08:39,120 We talked about right to work a little bit. 1288 01:08:39,120 --> 01:08:44,250 So item C, ridership growth is never instantaneous. 1289 01:08:44,250 --> 01:08:47,235 The point that [INAUDIBLE] made earlier in the class. 1290 01:08:50,130 --> 01:08:53,439 A lot of important things take time to achieve. 1291 01:08:53,439 --> 01:08:56,670 You don't instantaneously get a benefit. 1292 01:08:56,670 --> 01:09:00,750 If you provide more service, and you guessed right, 1293 01:09:00,750 --> 01:09:03,342 maybe there'll be a ridership growth in the area 1294 01:09:03,342 --> 01:09:04,800 that you're providing more service. 1295 01:09:04,800 --> 01:09:07,109 But it doesn't happen the day you start. 1296 01:09:07,109 --> 01:09:09,010 It's going to take time to build. 1297 01:09:09,010 --> 01:09:14,490 And that time period, and the lag 1298 01:09:14,490 --> 01:09:18,120 with which-- even if you get really well and a lot of riders 1299 01:09:18,120 --> 01:09:21,090 come, and you generate a lot more revenue, 1300 01:09:21,090 --> 01:09:23,760 that revenue is going to come later than the cost 1301 01:09:23,760 --> 01:09:25,830 that you have to expend early on. 1302 01:09:25,830 --> 01:09:33,190 So you get this sort of swerve in your pattern. 1303 01:09:36,010 --> 01:09:39,300 Now, this is a couple of years old, 1304 01:09:39,300 --> 01:09:40,960 but unfortunately it's still true. 1305 01:09:40,960 --> 01:09:42,689 There's this sort of nasty attitude 1306 01:09:42,689 --> 01:09:45,279 that well, we've got to grind down costs. 1307 01:09:45,279 --> 01:09:46,529 We've got to grind down costs. 1308 01:09:46,529 --> 01:09:48,970 We've got to grind on costs. 1309 01:09:48,970 --> 01:09:51,550 But the only reason we have a transit system 1310 01:09:51,550 --> 01:09:54,149 here is it actually happens to be important to the economy. 1311 01:09:54,149 --> 01:09:55,940 And we're lucky that the economy's growing. 1312 01:09:55,940 --> 01:09:58,240 We actually need more service. 1313 01:09:58,240 --> 01:10:04,810 So to me, it's more important to provide more service 1314 01:10:04,810 --> 01:10:07,765 than it is to grind down the cost of the service. 1315 01:10:11,110 --> 01:10:14,350 If the only thing you're doing is quote "saving money," then 1316 01:10:14,350 --> 01:10:16,690 shut the system down and save all the money. 1317 01:10:16,690 --> 01:10:18,640 Presumably, you're around because you're 1318 01:10:18,640 --> 01:10:20,710 providing something of value. 1319 01:10:20,710 --> 01:10:24,880 And you ought to be providing higher value, and more of it, 1320 01:10:24,880 --> 01:10:26,614 up to some reasonable limit. 1321 01:10:26,614 --> 01:10:28,030 But certainly I don't think anyone 1322 01:10:28,030 --> 01:10:30,370 who rides the T would argue we've 1323 01:10:30,370 --> 01:10:35,260 reached the level where there's too much service out there. 1324 01:10:35,260 --> 01:10:39,430 We've got a long way to go in improving service to get 1325 01:10:39,430 --> 01:10:41,170 anywhere near to such a danger. 1326 01:10:43,900 --> 01:10:48,670 This brings me back to this question of contracting out. 1327 01:10:48,670 --> 01:10:53,050 Because to me, most of the discussion about contracting 1328 01:10:53,050 --> 01:10:56,460 out, if you're reading the Boston papers, is about, 1329 01:10:56,460 --> 01:10:59,140 oh we'll contract out and we'll save money. 1330 01:10:59,140 --> 01:11:01,360 And labor costs too much, and blah, blah, blah. 1331 01:11:01,360 --> 01:11:04,900 In the first place, you're not going to save much money. 1332 01:11:04,900 --> 01:11:07,960 The workers-- Paul Revere, the company 1333 01:11:07,960 --> 01:11:14,230 that runs the blue M2 bus that you see on Mass Avenue, 1334 01:11:14,230 --> 01:11:16,737 they're also a union operation. 1335 01:11:16,737 --> 01:11:18,070 They've got the Teamsters Union. 1336 01:11:18,070 --> 01:11:19,486 They provide health care benefits. 1337 01:11:19,486 --> 01:11:21,400 They pay decently. 1338 01:11:21,400 --> 01:11:28,430 It's not about-- a good, private contracting scheme in my view, 1339 01:11:28,430 --> 01:11:32,110 is not about paying workers less. 1340 01:11:32,110 --> 01:11:34,360 It's about providing a better service. 1341 01:11:34,360 --> 01:11:37,890 How many of you use the number one bus? 1342 01:11:37,890 --> 01:11:41,970 And are any of you able to use the M2 shuttle? 1343 01:11:41,970 --> 01:11:45,700 OK, which one comes first usually? 1344 01:11:45,700 --> 01:11:50,590 AUDIENCE: M2, the one depending on the day. 1345 01:11:50,590 --> 01:11:52,330 FREDERICK SALVUCCI: Which one-- 1346 01:11:52,330 --> 01:11:55,180 which one are you more likely to find a seat on? 1347 01:11:55,180 --> 01:11:56,920 AUDIENCE: M2. 1348 01:11:56,920 --> 01:11:58,910 FREDERICK SALVUCCI: The M2 is a better service. 1349 01:11:58,910 --> 01:12:01,280 That's what you could get. 1350 01:12:01,280 --> 01:12:04,010 That's not because the T is inherently inferior. 1351 01:12:04,010 --> 01:12:07,010 There is not enough service on that line. 1352 01:12:07,010 --> 01:12:09,650 But Paul Revere runs a reasonable service 1353 01:12:09,650 --> 01:12:12,970 because, if they don't, they won't get chosen next time. 1354 01:12:12,970 --> 01:12:20,060 There is some competition, not just for cost, but for quality. 1355 01:12:20,060 --> 01:12:22,460 And to me, you want to be in that area. 1356 01:12:22,460 --> 01:12:28,660 And the other issue is if you want to increase service, 1357 01:12:28,660 --> 01:12:33,190 and you talk to the MBTA, you go to a meeting 1358 01:12:33,190 --> 01:12:35,140 and say the service is lousy. 1359 01:12:35,140 --> 01:12:38,170 We want more bus service on the number one bus. 1360 01:12:38,170 --> 01:12:41,860 And the answer is, fine what service would you 1361 01:12:41,860 --> 01:12:46,180 suggest we cut so we can reroute those buses onto the number 1362 01:12:46,180 --> 01:12:47,170 one? 1363 01:12:47,170 --> 01:12:48,920 We'll cut the baloney, that's crazy. 1364 01:12:48,920 --> 01:12:50,890 Those other routes need the service too. 1365 01:12:50,890 --> 01:12:52,840 They're in this sum zero game where 1366 01:12:52,840 --> 01:12:56,500 they refuse to add service except by taking away. 1367 01:12:56,500 --> 01:12:59,080 Consequently they never add service. 1368 01:12:59,080 --> 01:13:00,790 And they said, well, it's a tough world. 1369 01:13:00,790 --> 01:13:02,040 We only get so much equipment. 1370 01:13:02,040 --> 01:13:03,280 We only got so much drivers. 1371 01:13:03,280 --> 01:13:05,860 We only have so many maintenance facilities, 1372 01:13:05,860 --> 01:13:07,580 land of 1,000 excuses. 1373 01:13:07,580 --> 01:13:09,110 We can't expand. 1374 01:13:09,110 --> 01:13:12,010 You want more service, contract for it. 1375 01:13:12,010 --> 01:13:13,390 Put some money on the table. 1376 01:13:13,390 --> 01:13:16,360 Have a bid, work and get some competition 1377 01:13:16,360 --> 01:13:17,945 so it isn't just Paul Revere. 1378 01:13:17,945 --> 01:13:19,570 You'll get more service a hell of a lot 1379 01:13:19,570 --> 01:13:21,790 faster than you will ever get it out 1380 01:13:21,790 --> 01:13:23,110 of the public sector machine. 1381 01:13:23,110 --> 01:13:30,580 So I think there's a pro rider argument for contracting out 1382 01:13:30,580 --> 01:13:33,910 that I believe is quite valid. 1383 01:13:33,910 --> 01:13:35,230 But no one makes that. 1384 01:13:35,230 --> 01:13:41,060 You have this kind of contest between the anti-cost, 1385 01:13:41,060 --> 01:13:44,360 grind down workers, it's a victory if we pay people less. 1386 01:13:47,140 --> 01:13:51,940 And the union that says, do everything in-house. 1387 01:13:51,940 --> 01:13:53,740 Neither of those parties is really 1388 01:13:53,740 --> 01:13:56,260 speaking on behalf of the riding public. 1389 01:13:56,260 --> 01:14:00,220 So you want to think about those aspects. 1390 01:14:00,220 --> 01:14:03,670 Usually people talk about the union relationship 1391 01:14:03,670 --> 01:14:07,120 as bargaining for-- 1392 01:14:07,120 --> 01:14:08,530 union wants higher wages. 1393 01:14:08,530 --> 01:14:13,250 Management wants lower wages, et cetera, et cetera. 1394 01:14:13,250 --> 01:14:16,380 Bargaining takes place periodically. 1395 01:14:16,380 --> 01:14:18,210 You might have a two year contract, 1396 01:14:18,210 --> 01:14:21,680 you might have a three year contract. 1397 01:14:21,680 --> 01:14:24,710 You set the terms in wages and working conditions 1398 01:14:24,710 --> 01:14:25,490 for that period. 1399 01:14:25,490 --> 01:14:27,320 Then you bargain again. 1400 01:14:27,320 --> 01:14:29,240 If you can't reach agreement, there 1401 01:14:29,240 --> 01:14:32,540 are procedures for binding arbitration. 1402 01:14:32,540 --> 01:14:36,437 Why do we have binding arbitration? 1403 01:14:36,437 --> 01:14:37,770 Why don't we just have a strike? 1404 01:14:40,380 --> 01:14:41,730 You know? 1405 01:14:41,730 --> 01:14:44,460 AUDIENCE: Why do we find [INAUDIBLE] 1406 01:14:44,460 --> 01:14:45,460 FREDERICK SALVUCCI: Yes. 1407 01:14:45,460 --> 01:14:48,280 At the MBTA we have binding arbitration. 1408 01:14:48,280 --> 01:14:51,220 It's not the case in every transit agency in the country. 1409 01:14:51,220 --> 01:14:53,602 In Philadelphia if they can't reach agreement, 1410 01:14:53,602 --> 01:14:54,310 there's a strike. 1411 01:14:58,094 --> 01:14:59,746 AUDIENCE: They put it in state law. 1412 01:14:59,746 --> 01:15:02,204 FREDERICK SALVUCCI: Yes, why was it put into the state law? 1413 01:15:02,204 --> 01:15:03,580 AUDIENCE: To avoid strike. 1414 01:15:03,580 --> 01:15:04,580 FREDERICK SALVUCCI: Yes. 1415 01:15:04,580 --> 01:15:06,770 So in Massachusetts the thing was, wait a minute, 1416 01:15:06,770 --> 01:15:11,450 strikes are really painful for everybody. 1417 01:15:11,450 --> 01:15:14,660 Let's just have a bureaucratic process 1418 01:15:14,660 --> 01:15:18,350 to settle disputes that can't be resolved, 1419 01:15:18,350 --> 01:15:19,650 but let's not have a strike. 1420 01:15:19,650 --> 01:15:21,650 Too many people are hurt when you have a strike. 1421 01:15:21,650 --> 01:15:24,860 The workers-- workers lose their health care benefits. 1422 01:15:24,860 --> 01:15:28,010 I mean, your kid's got a kidney problem, 1423 01:15:28,010 --> 01:15:30,710 and you have no health care, that's a problem. 1424 01:15:30,710 --> 01:15:33,060 So it's a problem for the worker to be on strike. 1425 01:15:33,060 --> 01:15:34,410 It's not easy. 1426 01:15:34,410 --> 01:15:36,950 It's a problem for the public, there's no service. 1427 01:15:36,950 --> 01:15:40,920 So binding arbitration I think is a good idea. 1428 01:15:40,920 --> 01:15:43,460 There are those who argue the Philadelphia system is better. 1429 01:15:43,460 --> 01:15:44,330 I think it's wacky. 1430 01:15:44,330 --> 01:15:48,010 They shut down the city every periodically. 1431 01:15:48,010 --> 01:15:49,760 AUDIENCE: They lose their health insurance 1432 01:15:49,760 --> 01:15:50,719 when they go on strike? 1433 01:15:50,719 --> 01:15:53,009 FREDERICK SALVUCCI: Yes, if you're not employed anymore 1434 01:15:53,009 --> 01:15:54,110 you lose the benefit. 1435 01:15:54,110 --> 01:15:55,568 AUDIENCE: But when you're on strike 1436 01:15:55,568 --> 01:15:57,240 aren't you still employed? 1437 01:15:57,240 --> 01:16:00,210 FREDERICK SALVUCCI: Not if the contracts run out. 1438 01:16:00,210 --> 01:16:04,500 I mean it's like, it's a bizarre world. 1439 01:16:04,500 --> 01:16:07,050 AUDIENCE: But in most [INAUDIBLE] is that going to be 1440 01:16:07,050 --> 01:16:08,480 the issue, because if they have-- 1441 01:16:08,480 --> 01:16:10,340 FREDERICK SALVUCCI: No. 1442 01:16:10,340 --> 01:16:13,140 Yes, in other places you would have a more civilized way 1443 01:16:13,140 --> 01:16:15,970 of dealing with it, because you didn't have this odd World War 1444 01:16:15,970 --> 01:16:16,470 II. 1445 01:16:16,470 --> 01:16:16,770 [INTERPOSING VOICES] 1446 01:16:16,770 --> 01:16:19,160 AUDIENCE: The English have way more strikes than we do. 1447 01:16:19,160 --> 01:16:20,987 Maybe that's because they're not [INAUDIBLE] health 1448 01:16:20,987 --> 01:16:21,960 care when they go on strike. 1449 01:16:21,960 --> 01:16:23,610 FREDERICK SALVUCCI: That could be true. 1450 01:16:23,610 --> 01:16:25,790 But they also-- 1451 01:16:25,790 --> 01:16:28,560 I don't know if those are legal strikes or illegal strikes. 1452 01:16:28,560 --> 01:16:31,470 Because sometimes in Massachusetts 1453 01:16:31,470 --> 01:16:36,350 even though we've got binding arbitration, 1454 01:16:36,350 --> 01:16:38,740 and it's against the law to strike, 1455 01:16:38,740 --> 01:16:40,860 occasionally they'll walk out. 1456 01:16:40,860 --> 01:16:43,730 And it's very dramatic. 1457 01:16:43,730 --> 01:16:45,270 You put the labor leaders in jail, 1458 01:16:45,270 --> 01:16:47,900 and that gets them more votes next time, 1459 01:16:47,900 --> 01:16:50,500 because it shows how committed they were to the cause. 1460 01:16:50,500 --> 01:16:52,150 A lot of theater involved 1461 01:16:52,150 --> 01:16:59,580 But the only point is the drama is around the bargaining. 1462 01:16:59,580 --> 01:17:05,140 And potential strike, wildcat strike, binding arbitration. 1463 01:17:05,140 --> 01:17:08,010 And it's about how much money in the envelope. 1464 01:17:08,010 --> 01:17:13,320 But at least as important as what's bargained explicitly, 1465 01:17:13,320 --> 01:17:16,470 is the day to day relationship between management and labor 1466 01:17:16,470 --> 01:17:20,607 between the bargaining, because you've got a job to do. 1467 01:17:20,607 --> 01:17:21,690 You've got to run service. 1468 01:17:21,690 --> 01:17:24,220 And there are these arcane rules. 1469 01:17:24,220 --> 01:17:27,540 And the rules are so arcane that if you comply with every rule, 1470 01:17:27,540 --> 01:17:29,520 you can't run the service. 1471 01:17:29,520 --> 01:17:32,100 Oh I'm not going to drive the bus because the windshield 1472 01:17:32,100 --> 01:17:35,560 wiper is broken, and the rulebook says I can't drive it. 1473 01:17:35,560 --> 01:17:36,420 But it's sunny out. 1474 01:17:36,420 --> 01:17:37,260 It's not raining. 1475 01:17:37,260 --> 01:17:38,219 We'll fix it tonight. 1476 01:17:38,219 --> 01:17:39,760 Nope, I'm not going to drive the bus. 1477 01:17:39,760 --> 01:17:41,440 It's not in perfect condition. 1478 01:17:41,440 --> 01:17:46,530 So there's always an informal relationship 1479 01:17:46,530 --> 01:17:49,140 between the employer and the employee, 1480 01:17:49,140 --> 01:17:52,920 or the management and the employee. 1481 01:17:52,920 --> 01:17:55,170 And that day to day relationship is 1482 01:17:55,170 --> 01:17:59,730 very critical to the quality of service you can provide. 1483 01:17:59,730 --> 01:18:04,560 And the papers never talk about that aspect 1484 01:18:04,560 --> 01:18:06,240 of the Labor-Management relationship. 1485 01:18:06,240 --> 01:18:08,070 It's almost always about the bargaining, 1486 01:18:08,070 --> 01:18:10,444 and how much is in the paycheck, and what the health care 1487 01:18:10,444 --> 01:18:11,880 benefits are. 1488 01:18:11,880 --> 01:18:18,120 So you really need to think about the quote unquote 1489 01:18:18,120 --> 01:18:22,140 "culture of the place," and what it's like to actually provide 1490 01:18:22,140 --> 01:18:24,520 service in a union environment. 1491 01:18:24,520 --> 01:18:27,030 And if you didn't have a union, you'd 1492 01:18:27,030 --> 01:18:29,220 still have to solve the problem of how to get-- 1493 01:18:29,220 --> 01:18:30,750 how to motivate your workers. 1494 01:18:30,750 --> 01:18:35,790 So it's not-- the union is just giving you an articulated forum 1495 01:18:35,790 --> 01:18:38,250 to deal with this issue, which can actually 1496 01:18:38,250 --> 01:18:39,799 be kind of convenient. 1497 01:18:39,799 --> 01:18:41,340 If you don't have a union, you almost 1498 01:18:41,340 --> 01:18:44,880 need to invent one because you need some basis to communicate 1499 01:18:44,880 --> 01:18:46,680 with your workers about, OK, how we're 1500 01:18:46,680 --> 01:18:48,240 going to get this thing done. 1501 01:18:48,240 --> 01:18:55,470 So if you shift your focus from the paycheck bargaining aspect 1502 01:18:55,470 --> 01:18:59,340 to the management of the production of the work, 1503 01:18:59,340 --> 01:19:02,725 I think you'll be looking at the more important problem. 1504 01:19:06,180 --> 01:19:08,440 And I'm out of time in two minutes. 1505 01:19:08,440 --> 01:19:12,510 So let's see if there's anything else in here. 1506 01:19:12,510 --> 01:19:15,980 Here, how many of you have seen this? 1507 01:19:15,980 --> 01:19:18,659 OK so what is it? 1508 01:19:18,659 --> 01:19:20,700 AUDIENCE: They've been trying to do a few things. 1509 01:19:20,700 --> 01:19:24,560 Trying to get a increase state income tax by a little bit, 1510 01:19:24,560 --> 01:19:26,275 particularly on the rich. 1511 01:19:26,275 --> 01:19:30,390 And they're trying to get some more money out 1512 01:19:30,390 --> 01:19:33,882 than what the state provides in transit, education, and health 1513 01:19:33,882 --> 01:19:34,854 care. 1514 01:19:34,854 --> 01:19:37,290 Or in this case, in transit. 1515 01:19:37,290 --> 01:19:40,080 FREDERICK SALVUCCI: And so they're putting a lot of energy 1516 01:19:40,080 --> 01:19:41,070 into this. 1517 01:19:41,070 --> 01:19:44,370 And it's a direct-- 1518 01:19:44,370 --> 01:19:48,840 the union has gained, in my view, a lot of leverage. 1519 01:19:48,840 --> 01:19:54,420 Because the management at the MBTA has been so into we're 1520 01:19:54,420 --> 01:19:57,040 going to privatize this to save money. 1521 01:19:57,040 --> 01:19:59,340 We can do it cheaper by contracting it out. 1522 01:19:59,340 --> 01:20:01,950 They never talk about we can improve service 1523 01:20:01,950 --> 01:20:04,050 by contracting it out. 1524 01:20:04,050 --> 01:20:06,840 So they've totally, in my view, blown it 1525 01:20:06,840 --> 01:20:10,410 because all they're doing is saying we can do it cheaper 1526 01:20:10,410 --> 01:20:12,300 if we contract out. 1527 01:20:12,300 --> 01:20:15,090 And they've left the playing field 1528 01:20:15,090 --> 01:20:19,860 open to labor to pose as the champion of the riders. 1529 01:20:19,860 --> 01:20:22,800 And say, oh we are friendly transit providers. 1530 01:20:22,800 --> 01:20:26,100 Give us more money and you can have better service. 1531 01:20:26,100 --> 01:20:30,690 Never dealing with the fact that the service production at the T 1532 01:20:30,690 --> 01:20:32,400 is pretty bad. 1533 01:20:32,400 --> 01:20:38,830 And the Paul Revere, private companies, do a better job. 1534 01:20:38,830 --> 01:20:40,980 They are closer to that efficiency frontier 1535 01:20:40,980 --> 01:20:43,250 that [INAUDIBLE] was talking about 1536 01:20:43,250 --> 01:20:49,050 of getting as much quality service as you can 1537 01:20:49,050 --> 01:20:51,660 out of a given resource base. 1538 01:20:51,660 --> 01:20:55,530 It's always possible to get less than you paid for. 1539 01:20:55,530 --> 01:20:58,140 It's rare that you can get more than you paid for. 1540 01:20:58,140 --> 01:21:01,900 That discussion never happens that there's 1541 01:21:01,900 --> 01:21:03,400 a reason for contracting out. 1542 01:21:03,400 --> 01:21:06,920 Because we can grow faster, we can provide better service. 1543 01:21:06,920 --> 01:21:08,890 So the playing field has been left 1544 01:21:08,890 --> 01:21:12,160 totally open to labor who says management 1545 01:21:12,160 --> 01:21:13,340 doesn't care about you. 1546 01:21:13,340 --> 01:21:15,550 They don't care how crowded your bus is. 1547 01:21:15,550 --> 01:21:18,760 They don't care how lousy the service is. 1548 01:21:18,760 --> 01:21:20,620 They're just into being mean to labor. 1549 01:21:20,620 --> 01:21:23,052 I mean that's basically-- 1550 01:21:23,052 --> 01:21:24,510 I think it's a really dumb strategy 1551 01:21:24,510 --> 01:21:27,180 by the current management at the T. 1552 01:21:27,180 --> 01:21:28,890 That's a very objective statement. 1553 01:21:28,890 --> 01:21:34,200 And it's a minute late so, sorry to go on too long and thanks 1554 01:21:34,200 --> 01:21:36,350 for being here.