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Thinking Minnesota: Summer 2010

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CONTENTS

A WORD FROM THE PRESIDENT

Don’t Concede Importance of Job Security

FEATURE

Culture, Compassion, and Conservatism
By Mitch Pearlstein

LEGISLATIVE FOCUS

American Experiment Proposals and Priorities Advance in St. Paul

HEALTH CARE FOCUS

Implementing health care legislation as wisely as possible
by Peter J. Nelson

THE BATTLE

“The purpose of free enterprise is human flourishing, not materialism”
by Arthur C. Brooks

STATE BUDGET FOCUS

Cuts offer more effective long-term budget solution

 

 

A WORD FROM THE PRESIDENT

Don’t Concede Importance of Job Security

I trust most people remember Jim Collins’ best-selling business book from almost a decade ago, Good to Great: Why Some Companies Make the Leap . . . and Others Don’t.  It’s quite good, although it’s also fair to say it’s hasn’t worn particularly well recently given how two of its celebrated eleven companies, Circuit City and Fanny Mae, haven’t had the best of quarters or years.    Nevertheless, those troubles don’t nullify his main arguments, including what he has to say about the role of layoffs—my immediate interest here—in determining a company’s success.  

According to Collins, six of the eleven good-to-great companies recorded zero layoffs in the approximately quarter century leading up to his start of work on the book, with four of the other five firms reporting only one or two layoffs during the period.  (By “layoffs,” he refers to rounds of letting people go; not the letting go of individuals.)  In contrast, layoffs were used five times more frequently in a group of comparison companies, with some of them having an “almost chronic addiction to layoffs and restructurings.” 

Another management consultant and writer, Frederick Reichheld, came to a similar conclusion several years earlier.  Over the course of more than a decade of strategic consulting, he wrote in the Loyalty Effect, he and his colleagues came across companies “generating mystifying levels of free cash flow.”  What distinguished them from other firms?  “Each time we found a performance record that was hard to square with traditional economics taught in business schools, we also found a company with superior loyalty.”  Reichheld’s conception of loyalty is broad, encompassing employees, customers, and investors. 

Now, it’s fully understood that the men and women who run companies sometimes have no choice but to lay people off.  Recessions especially do that.  It’s also recognized that a certain amount of perpetual churn is essential otherwise 90 percent of us might still be clearing rocks working back forties.   Which is another way of saying that economic creativity and progress are inescapably destructive in various ways.  Still, it’s fair to say I’m partial to employers who keenly understand, not only how their businesses generally are best-served by straining to hang on to staff, but how employees tend to have families and mortgages and how they need their jobs, often desperately so.  

Connecting a few dots, it’s likewise fair to say my interest here is not just commercial but also political, as I sense and fear a bit of tone deafness in current conservative talk. 

I start from the premise that for all of our rugged individualism, both real and professed, most Americans are simultaneously quite fond of financial security.  This is notably the case, once again, if they have substantial

familial and other obligations with not a lot to fall back on.  Yet I suspect I’m not the only one to have noticed

how recent right-of-center rhetoric seems to be significantly more occupied with the compelling virtues of risk-taking than sufficiently attuned to how many millions of

Americans are nervous and flat-out scared? 

The last thing the nation needs is a more intrusive and suffocating nanny state.  But it would be a self-defeating mistake for the right to concede to the left, rhetorically and otherwise, a near-franchise when it comes to peace of mind. 

For starters—and beyond constantly stressing how job security is forever linked to the vitality of a region’s business climate—it wouldn’t be a bad idea for those who argue for measurably slicing government to more empathetically acknowledge how a price of such a necessary route is the inevitability of many good people losing their jobs. To at least partially allay both hardship and fear, conservatives might consider following the lead of Rep. Keith Downey (R-Edina) and support additional ways of encouraging early retirements as alternatives to layoffs.  ■
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FEATURE

Culture, Compassion, and Conservatism
By Mitch Pearlstein

The following is adapted from an essay Mitch Pearlstein wrote for MicroGrants, It’s Working!, a 2009 book by his old friend Joe Selvaggio, in collaboration with Jim Klobuchar and Tony Bouza, among others.  Its references to American Experiment’s very modestly funded earliest days have extra resonance given the Center’s ongoing 20th anniversary celebration in 2010.  You can find the entire essay online at AmericanExperiment.org.

It’s easy to lose sight of how pivotal relatively small, even tiny amounts of money can be for small start-ups. I’ve long been a fan of micro-grants, albeit primarily as used elsewhere, in less economically prodigious parts of the world.  The quiet brilliance of MicroGrants [the Twin Cities organization by that name] notwithstanding, most people, it should be readily understood, are neither interested in nor perhaps equipped to start or run their own business. I take this limitation to be implicit in my charge of spotlighting (other) “conservative” and right-of-center ways of understanding poverty and lifting people out of it.  So beyond acknowledging how MicroGrants captures the effervescent spirit of the late Jack Kemp and the possibilities and power of free enterprise, permit me to make several additional points, starting with the importance of striking benign balances.

Holding feet to fires and touching hearts

Center of the American Experiment’s inaugural event was a day-long conference in 1990 titled “The New War on Poverty: Advancing Forward This Time.” That was where, in fact, I first met Joe Selvaggio. As the final afternoon session concluded, and the last of 300 ideologically and otherwise eclectic attendees filed out of the old Radisson St. Paul, he introduced himself and said something along the lines, “Well, I’ve seen your program, now you’ve got to see mine,” which at the time was Project for Pride in Living, another major Minnesota asset which is still doing superb life-enriching work. I took the tour and I quickly recognized that Joe succeeded in getting a very hard, yet imperative, balancing act pretty close to perfect, as he at once practiced a palpable faith in low-income men and women, while simultaneously recognizing that some people wind up in rotten spots in life because they personally and irresponsibly do themselves in. We have all heard him stand up for the least among us. But at least some of us also have heard him harshly criticize those who are lax, uncivil, and sometimes violent. The shorthand for this kind of warm heartedness, uncompromised by naiveté, is tough loving. It’s likewise a good shorthand description of Joe’s uncommon gifts and contribution.

An example of tough loving writ large in policy script was welfare reform legislation in 1996, which had been pushed mainly by congressional Republicans, but signed into law, to his large credit, by Democratic President Bill Clinton. Suffice it to say, the Temporary Assistance for Needy Families Act has succeeded extraordinarily for a governmental program, with the number of welfare recipients across the country falling remarkably, all the time without (as some opponents feverishly contended in the ‘90s) American streets degenerating to those of Calcutta.

It’s fascinating to note the degree to which inside players underestimated the ability of people to escape welfare if only they were pushed and prodded in right ways. In other words, too many well-off folks had too little faith in poor folks.

The lesson here is that we needed to be bolder than we had been—bolder, not colder—in reining in welfare and eligibility for it. We needed to do so, not just in the interest of public treasures, but much more to the heart, on behalf of millions of families, mostly mothers and children, who had been enwrapped, not in compassionate public arms, but in a well-intentioned dependency that not a single person reading these pages would wish on anyone he or she loved.

Frankly, I don’t know what Joe thought of welfare revamping back then, or even now. But at the risk of irritating the hell out of him, it was the likes of Newt Gingrich and the Heritage Foundation which gave concrete policy life to Joe’s belief in the God-given worth and strengths of poor people. And in conjunction with Bill Clinton, it was the former Speaker and others, mostly on the right side of the aisle, who calibrated a new and benign balance between holding feet to fires and touching hearts.

Trim poverty through middle-class values

Several times during the Center’s inaugural conference in 1990, I was accused of advocating “middle-class values,” as if doing so was, somehow, unloving to the point of bigoted. I didn’t respond that day, but shortly thereafter wrote a column in the St. Paul Pioneer Press in which I conceded that yes, the secret was out: I had indeed been trafficking in such dastardly norms.

I defended myself by explaining that all societies have rules, and that when it came to radically increasing the chances of avoiding poverty, American ones really weren’t all that unreasonable, and that all I meant by middle-class values were a half-dozen quite basic and mundane expectations: (1) Go to high school, work moderately hard, and graduate; (2) if you can work, work; (3) be married before making babies; (4) if you’re married, try to stay that way unless circumstances are abusive; (5) don’t do drugs or drink too much; and (6) don’t commit crime. That was it; that’s all I meant by middle-class values, which my critics condemned as bourgeois bull.

Reaction to the column frankly amazed me. I thought it was a rather well written piece, but praise (in most quarters) was far more enthusiastic than it inherently deserved. After all, what had I said that was so insightful or brilliant? All I had argued was that people ought to be commonsensical; not exceptional, not heroic, just responsible. Nevertheless, many responded as if I had broken new ground—when, in fact, I was just restating old ground rules which, incomprehensibly, had come to be seen by many other men and women over the previous quarter-century as intrusive and sometimes racially suspect dictates. Two members of Congress actually reprinted the column in the Congressional Record. Reactions, in sum and simultaneously, were stunning and absurd, illustrating most of all how far we had fallen.

If I were to expand on the column today, I would only need to imagine and then transcribe, what almost all hard-working parents would surely tell their own children as they approached maturity and first jobs: work hard, be respectful, smile regularly, put a permanent hold on new tattoos and body piercings, recognize that middle-class values and below-butt pants don’t mesh—you get the not terribly complicated or unreasonable idea.  ■
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LEGISLATIVE FOCUS

American Experiment Proposals and Priorities Advance in St. Paul

American Experiment released a number of proposals in connection with the 2010 legislative session, including a major report with recommendations on election law and a new series of publications we call Capitol Solutions.    The latter focused on health care, education, and the state’s budget process.  When the legislature finally adjourned in May, a number of Center proposals and priorities either were adopted or had made substantial headway.  Of course, there were some disappointments as well.  Here’s a short review of our work during the 2010 session.

Election law 

In October 2009 we released No Longer a National Model: Fifteen Recommendations for Fixing Minnesota Election Law and Practice, by Senior Fellow Kent Kaiser.  His study set much of the agenda for election law reform in 2010.  We’re pleased to report that five of his fifteen recommendations were successfully enacted.

  • In keeping with new federal law, moving the primary to an earlier date and extending the absentee ballot season.  These changes should be particularly helpful to overseas military personnel who often have trouble sending their votes in on time to be counted.
  • Instituting systems of bar-coding and central processing of absentee ballots.  Bar-coding will bring efficiency to absentee ballot processing and help verify the on-time arrival of ballots.
  • Recounting only ballots counted on Election Day.  By recounting only the ballots actually counted, future recounts will eliminate the suspicions and skepticism that inevitably surface from the subjective practice of bringing only some disputed ballots into the recount process.
  • In the case of “duplicate” ballots, count the duplicates, not the originals.  This will help avoid the possible double counting of both voters’ original ballots and any duplicate ballots created by poll workers when originals won’t go through the ballot scanner.
  • Following laws currently on the books and formally increasing uniformity and specificity of procedures.  The 2008 U.S. Senate election showed how standards and procedures varied widely among Minnesota counties.  Uniformity and specificity of procedures will help avoid the disorder that opened up that recount to the possibility of fraud.

The legislature also passed a law moving in the direction of a sixth recommendation: centralizing absentee ballot processing.  Summing things up, Dr. Kent Kaiser wrote this in the Duluth News Tribune: “In this legislative session, when there are so many other issues overshadowing election reform, it has been wonderful to see legislators set aside partisanship and quietly do what’s best for Minnesota elections.”  Still, there is work to be done to implement our other recommendations, most importantly, requiring photo ID to access a ballot.

Health Care 

As usual, health care was a top issue during the legislative session.  The early days of the session were focused on whether and how to reinstate the General Assistance Medical Care (GAMC) program for poor adults without children.  In the final days, the Health and Human Services omnibus bill wound up being the main point of contention.   Our analysis and recommendations made a substantial impact throughout the session.  We’re especially pleased with following results. 

  • GAMC compromise passed.  Early in the session, legislators passed a short-term fix to GAMC that essentially reinstated the old program with lower reimbursement rates to providers.  However, the governor vetoed this bill.  In his veto letter, he explained that the bill did “not represent meaningful reform and does not address fundamental cost issues.”  We agreed and supported a longer-term solution that truly reformed GAMC by paying hospitals a global payment to cover the entire GAMC population they served.  After the veto, a compromise was struck to implement a global payment solution.  This compromise is miles from perfect, but it at least sets the program on a new path toward a long-term solution.
  • Medicaid expansion held off.  DFL legislators made Medicaid expansion a key priority in the final days.  In response, we published an analysis of the Health and Human Services omnibus bill that explained why Medicaid expansion was wrong for Minnesota.  In the end, the governor and the legislature reached a compromise that gave the governor and any future governor the discretion to expand Medicaid.  Governor Pawlenty decided not to expand Medicaid at this time. 
  • Medicaid surcharge increase failed.  DFL legislators also proposed to increase revenue for the HHS budget by raising the Medicaid surcharge on providers.  Proponents of the surcharge claimed it was not a tax increase.  In our analysis of the omnibus bill, we explained why a surcharge indeed constitutes a tax.  These Medicaid surcharges failed to pass.

On the disappointing side, there were a number of priorities that did not advance as far as we had hoped.  Lawmakers rejected a proposal to give Minnesotans the freedom to purchase health insurance coverage from other states.  Also, lawmakers reduced the payment rates that state health care programs pay providers, which will force providers to raise rates on private payers.     One of our longtime priorities for health care is to transition part of the state’s costly Medicaid program to a premium assistance program that subsidizes private market health plans.  While the idea received wider attention than in any other year, it failed to advance much beyond informational hearings at the legislature. 

Education 

We supported three major education policy initiatives in 2010.

  • Policies that take greater advantage of technology as a means of expanding education opportunities.
  • The Equity and Opportunity in Education Tax Credit, which would encourage contributions to scholarship-granting organizations benefiting low-income kids in both private and public schools. 
  • And an alternative path to certify teachers in order to give talented non-education majors and accomplished professionals greater opportunities to teach. 

In the end, the legislature failed to pass a K-12 education bill.  Opposition to the bill centered on the absence of provisions, such as alternative teacher certification, that would give Minnesota a chance at receiving federal Race to the Top grants, and the inclusion of a provision that would give school boards the power to extend levies without voter approval.  Consequently, very little happened on the K-12 education policy front and none of the legislation we supported gained passage. 

Still, there is one, most encouraging development, as an increasing number of legislators—including DFLers—increasingly and accurately saw Education Minnesota as a roadblock to progress.  Ties between some DFL lawmakers and Education Minnesota were strained particularly over the union’s intransigent opposition to alternative teacher certification.  

Budget Process

As discussed elsewhere in the newsletter, Minnesota continues to confront a severe long-term budget problem.  After addressing a $3.4 billion deficit in the 2010 session, lawmakers face a projected $5.8 billion deficit for 2012-2013.  To turn the tide on these persistent deficits, American Experiment made a number of recommendations to create a more fiscally sound budget process.  We highlighted five specific recommendations in our first Capitol Solutions report. 

  • First, create actionable performance measures for each state agency.
  • Second, rank spending priorities prior to setting a budget.
  • Third, institutionalize periodic spending reviews. 
  • Fourth, impose constitutional or statutory limits on spending. 
  • Fifth, review the proportion of recommendations that are implemented from the Legislative Auditor’s performance evaluations.

We also hosted a Luncheon Forum in March, “What We’ve Learned about Cutting Budgets,” with five distinguished public servants, each with long-time experience in such matters:  Rudy Boschwitz, John Gunyou, Peggy Ingison, Jay Kiedrowski, and Tim Penny.

A sound budget process must institutionalize spending restraint, prioritization, performance review, efficiency, accountability, transparency, and access to reliable

information.  Minnesota’s budget process falls short on each of these criteria.  Unfortunately, throughout the session, there was scant interest in truly rethinking them.  An amendment to implement zero-based budgeting, one of our recommendations, passed in the House but was removed in conference.  When the larger fiscal crisis hits next year, maybe then lawmakers will be ready to take serious and essential action.  ■
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HEALTH CARE FOCUS

Implementing health care legislation as wisely as possible
by Peter J. Nelson

As a conservative health policy analyst, you might think that the past year taxed my patience and sanity.  You’d be absolutely right.

Day after day, I’d hear the same false messages from President Barack Obama and congressional Democrats.  There was the claim, of course, that their idea of health care reform would bend the cost curve—despite clear statements to the contrary from their own Congressional Budget Office.  Many also claimed that Medicare would become more solvent under the bill.  However, any Medicare savings will be used to pay for the bill’s expansion of Medicaid, not Medicare.  Moreover, the Medicare actuary recently admitted that estimates for the largest category of Medicare savings “may be unrealistic.”

Then there was this classic false promise: “If you like your health care plan, you can keep your health care plan.”  One plan in Virginia has already shut down due to the law.  And my favorite:  A public health plan option will increase competition.  You might recall President Obama likening the public plan option to the U.S. Post Office.  “Exactly!” is what I believe I screamed at the TV. 

Finally, there was the dubious use of reconciliation to ultimately gain passage of the bill, sidestepping the need for the Senate to vote on the full bill again.  

Well, that’s all in the past.  It’s now time to implement the federal legislation in Minnesota, doing so as judiciously and un-counterproductively as possible.

One hears a lot of conservatives detailing the pitfalls of the new law and urging Congress to repeal it.  While we concur, we also believe it would be a serious mistake to ignore the implementation process, affording fans of ObamaCare free reign in determining how it actually will work in detail.  There are literally hundreds if not thousands of decision points for state policymakers embedded in the legislation.  These decisions can prove the difference between a reasonably well-functioning, mostly patient-driven health care system in Minnesota and an ever expanding government health care bureaucracy that further micromanages doctor-patient relationships. 

In the near term, the two most pressing issues are establishing state health care exchanges and expanding the state’s Medicaid program.  The state exchanges will act as new health plan markets for individual and small-group health plan products.  Whether these exchanges are market-driven or government-driven remains a top concern.  Exchanges are not a new issue to American Experiment and we are well prepared to make a significant contribution to their development. 

As for Medicaid expansion, we continue to believe that the General Assistance Medical Care (GAMC) agreement reached earlier this year between Gov. Tim Pawlenty and legislators is worth pursuing.  The old GAMC program generally paid premiums for coverage under private

managed care health plans.  The new agreement transitions GAMC to a program that pays hospitals a single global payment for the entire GAMC population they treat.  That compromise agreement was settled on after the governor vetoed a GAMC spending bill in 2009, forcing redesign of the state program for low-income adults without children.  The alternative to pursuing the compromise is to simply expand the current Medicaid program to low-income adults without children.  We believe that approach is excessively costly and fails to adequately help the population it’s intended to serve.  It’s our hope that the compromise can become a pilot project under the federal legislation.

Of course, ObamaCare poses plenty of other issues and decision points.  We will keep our eyes especially on issues related to electronic medical records, provider payment reform, quality measurement, long-term care, and anything else that threatens to diminish your health care.  ■
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THE BATTLE

“The purpose of free enterprise is human flourishing, not materialism”
by Arthur C. Brooks

Arthur C. Brooks, president of the American Enterprise Institute, led his second American Experiment Luncheon Forum, in June, on his new book, The Battle, about what he sees as a new and pivotal culture war in the United States between free enterprise and European-style statism.  The book is vitally important and is doing great, for reasons you can see in this excerpt.

America faces a new culture war.

This is not the culture war of the 1990s. This is not a fight over guns, abortions, religion, and gays. Nor is it about Republicans versus Democrats. Rather, it is a struggle between two competing visions of America’s future. In one, America will continue to be a unique and exceptional nation organized around the principles of free enterprise. In the other, America will move toward European-style statism grounded in expanding bureaucracies, increasing income redistribution, and government-controlled corporations. These competing visions are not reconcilable: We must choose.

The battle between free enterprise and statism is not a minor one to be debated by economists. This is not an argument over financial details or government accounting minutiae. It is not a small difference of opinion over a couple of percentage points in marginal tax rates. This is about whether America will move toward social democracy like many other developed nations, or remain the America of entrepreneurs, individual opportunity and limited government.

The proponents of statism are not evil, but they are dead wrong about what is best for our nation. This book will present the evidence that free enterprise is an expression of the core values of a large majority of Americans. It brings the most life satisfaction to the most people. Personal liberty, individual opportunity, and entrepreneurship are the explanation for our nation’s past success and the promise of greater things to come. . . .

To win the culture war, [free enterprise supporters] must find a way to reclaim the morality of their worldview. Those of us in the free enterprise movement must show that while we often use the language of commerce and business, what we really believe in is human flourishing and happiness. We must articulate a set of moral principles that set forth our fundamental values and principles and be prepared to defend them against attack. The following is the first and most important of these moral principles: The purpose of free enterprise is human flourishing, not materialism. Free enterprise is not simply an economic alternative. Free enterprise is about who we are as a people and who we want to be. It embodies our power as individuals and our independence from the government. In short, enterprise is an act of self-expression—a declaration of what we truly va1ue—and a social issue for Americans.

When we reduce the idea of work to nothing more than a means of economic support, we strip it of its transcendental meaning in our lives. When we talk about business only as an economic engine, we forget that it can and should represent our values and give us a way to improve our world. And when we talk about entrepreneurship as nothing more than a method to attain economic growth, we miss what truly drives entrepreneurs and what (for the time being at least) makes America culturally different from the other nations of the world.  ■
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STATE BUDGET FOCUS

Cuts offer more effective long-term budget solution

Towards the end of the 2010 legislative session, things turned precarious when the Minnesota Supreme Court delivered an ill-considered opinion that overturned Gov. Tim Pawlenty’s decision to balance the budget through unallotment.  Our liberal friends, of course, cheered this opinion.  But as the cheering died down, it became clear that the legislature never had a viable alternative plan to balance the budget.  Consequently, lawmakers returned to the governor’s unallotments.  The session thus ended with a balanced budget agreement that largely ratified the governor’s previous unallotments and avoided tax increases, to boot.

However, the session also ended with an inescapable reality: The budget agreement did nothing to solve Minnesota’s long-term budget problem and actually made the problem worse.  This is because lawmakers balanced the budget primarily through one-time spending cuts and through shifts and delays in payments to the next biennium.  According to the state agency in charge of measuring our fiscal mess, “The one-time nature of FY 2010-11 actions, and the scheduled repayment of shifts and payment delays in the subsequent biennium, result in a projected budget shortfall in FY 2012-2013 of $5.766 billion.” 

With a nearly $6 billion deficit in view, the next legislative session starting next January promises to be one of the most challenging in the state’s history.  Lawmakers need new and innovative ideas to meet this challenge.  They also need more intellectual support for old ideas that remain good medicine but tough for lawmakers to swallow.  And that’s where American Experiment steps in. 

When the state’s budget problems came into focus two years ago, the Center immediately began proposing and supporting policies to reduce government spending both by cutting programs and by redesigning the programs we need.  Reducing spending, quite obviously, is an essential component to any long-term budget solution. 

There are many people who argue we need a “balanced approach” utilizing both spending reductions and tax increases.  However, Harvard economist Alberto Alesina

has demonstrated that “spending cuts are much more effective than tax increases in stabilizing the debt and avoiding economic downturns.”   This finding is based Alesina’s extensive investigation of fiscal adjustments across a broad sample of economically advanced countries.  Though Minnesota might not share a similar need to pay down excessive debt as the countries Alesina studied, Minnesota does share the need to make long-term fiscal adjustments.  This research clearly suggests that spending cuts offer a more stable long-term solution with less risk to the overall economy.

The fact is, tax increases undoubtedly will inhibit the state’s economic growth.  Higher taxes will only discourage business startups, expansions, and relocations here.  To the extent possible, we should be identifying ways to enhance economic growth when we’re crafting a long-term solution. 

Putting tax increases on the table, furthermore, will make true long-term spending reductions and government redesign impossible.  Peter Franchot, Maryland’s comptroller and a Democrat, explains this point in a recent post on his blog. 

As elected officials, we must hold the line on taxes, particularly when working families continue to struggle in a tough economy. I also believe that unless we resist the temptation to raise taxes when faced with difficult budget times, we will never achieve the true spending reform that is needed throughout State government, and which will ensure that we have the resources to meet our shared priorities.

As policymakers continue to search for solutions to Minnesota’s severe budget problems, American Experiment will continue to be a reliable and thoughtful resource for all involved.  ■
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