March 2 (Bloomberg) — Last November, bosses at a certain company in Marlboro, New Jersey, went to employees asking for help. It was a tough stretch, and the unemployment rate had just exceeded 10 percent for the first time since April 1983.

Management told the staff it just couldn't pay rising health-care costs without some financial give from the workers. The employees refused to help. In the end it was the employer that gave ground, committing to a raise of 23 percent over five years. The Newark Star-Ledger, which reported the story of this surrender in detail, noted that the company even promised to spend more on health-care benefits by extending family coverage. Employers at other, similar offices throughout the Garden State caved as well.

How could this happen? It happened because the workers were teachers, public-sector employees, not workers in the private sector. Well, duh, would have been the typical response until recently. Police, firefighters, and teachers are holy. So until now, even if you wanted to complain about what was going on in a place like prosperous Marlboro, you couldn't. There was nothing you could do to alter the situation, so why even raise the issue?

But that's changing, as evidenced by the Star-Ledger's decision to shame the Marlboro educators. The public is beginning to question the legitimacy of public unions' power because taxpayers know that commitments for worker health care and pensions are busting state budgets all over the country.

For those who recoil at these unions and their entrenched power, it is perhaps useful to go back to their history. It reveals that there was nothing inevitable about strong unions in the American public sector.

Firework Envy

At the end of World War I, workers in the U.S. watched the fireworks in the new Soviet Union with envy. They too wanted big unions, both in the private and public sectors.

The Boston police were most hopeful. After all, the working conditions for these men were terrible. An author who toured a police station behind City Hall noted that "the bugs were so voracious that they ate the leather on the police helmets and belts." The policemen joined a union and went on strike.

The Massachusetts governor, Calvin Coolidge, was slow to respond, deeming strike management the job of police Commissioner Edwin Curtis. Curtis fired the men. Afterward, Coolidge weighed in with a line that inspired Ronald Reagan: "There is no right to strike against the public safety by anybody, anywhere, any time." The policemen never got their jobs back. Coolidge's declaration catapulted him to national fame and a slot as vice presidential candidate on the 1920 Republican ticket.

Workers' Champion

What about Franklin Roosevelt, that champion of the worker? FDR, after all, was the president who signed the Wagner Act of 1935, which gave us modern collective bargaining in private industry.

But when it came to the public employees, FDR stayed close to Coolidge. In 1937, a year when industrial unions were striking furiously, FDR penned a letter to the head of the National Federation of Federal Employees, arguing that when the question regarded pay, hours and grievances, civil servants ought to be no different from those in the private sector. But collective bargaining, FDR wrote, was an exception. It couldn't, he said, "be transplanted into the public service." He particularly disapproved of "militant tactics" and reminded Luther Steward, president of the organization, that his own association's charter banned strikes.

The president who finally did give public unions their modern powers was John F. Kennedy. In 1962, Kennedy signed Executive Order 10988, which allowed collective bargaining and gave unions other powers.

Union Tool

The same year Kennedy also gave public-sector unions a tool to justify higher wages by signing the Salary Reform Act of 1962, which established that there be "comparability" of public-sector pay to pay in the private sector.

One senses that even Kennedy wasn't sure he was right. The executive order, for example, excluded the Federal Bureau of Investigation, the Central Intelligence Agency, and any other office performing security functions should its head deem that collective bargaining would endanger national security. One of the slowest federal agencies to obey the order and extend recognition to unions was the Justice Department, headed by President Kennedy's brother Robert.

Observers understood what Kennedy had done. Later presidents might move against public unions — as Reagan did against PATCO, the air traffic controllers' union. But they couldn't stop the growth.

Airport Security

This reluctance to allow union bargaining in sensitive areas is germane now because the American Federation of Government Employees is petitioning for the right to organize the 40,000 airport-security workers across the country.

The public-sector unions recently surpassed private-sector unions in membership. And the lengths to which Americans have gone to accommodate public-sector unions is extensive and artful.

In rural New England, a joke circulates about one such accommodation. "What makes a real man?" the joke starts. "Well, a real man is independent. A real man has a pickup," goes the next line. And the joke proceeds: "A real man has a dog. A real man has a rifle. A real man has a pickup, a dog, a rifle, and — a wife who's a teacher."

This may work for some, but the more general marriage between the country's public-sector workers and the private economy isn't a good deal for the economy. Pretty soon we will see states rewriting contracts with employees, dialing down pensions and pay so they line up with the rest of us. The process will feel nasty, but the states have to do it — even when it involves a teacher.

(Amity Shlaes, senior fellow in economic history at the Council on Foreign Relations, is a Bloomberg News columnist. The opinions expressed are her own.)

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