I was glad to see a small entry in the Indy Star that shows a recognition that private entities do not always perform a function more cost effectively than the government. The example cited is the General Assembly’s decision to perform printing functions in-house rather than continuing to outsource the function. I’ve been citing that one for quite some time now. That cite has a run down of what I was able to find in the minutes of the Legislative Council. From those minutes, it looked like the move in-house was saving about $300,000 per year. The Star report indicates a savings of about $1.1 to $1.5 million for a three year period.
If you look through those legislative council minutes, you can see that Senator Harrison was not a fan of “in-house printing.” My speculation – for which I have no immediate proof – was that Sen. Harrison was friendly with the printer who had the contract and did not want to see the vendor lose the contract. That contract which included composition duties, along with duplication duties, called for a rate of $0.095 per page. By contrast, during the same time period a duplication only contract was going for about $0.02 per page. The big question, therefore, was whether the composition duties could be performed for less than $0.075 per page by government employees. And the answer to that was a resounding, “Yes.”
Now, some privatization advocates might argue that this private vendor just had a sweet heart deal; it was cronyism that made the outsourcing expensive. And there is a point to that. But, I have to ask, if you don’t think government employees can perform even core government functions properly by itself, what makes you think it can competently assign and oversee gazillion dollar contracts. And what makes you think that this current round of privatization will be free of cronyism? Exhibit #1: Gov. Daniels apparently wants to give Mitch Roob’s last employer, ACS, a billion dollars to screen Medicaid eligibility — despite the recent resignation of its CEO and CFO due to being investigated for falsifying the dates on options, a financial shenanigan designed to boost the value of those options.
As Dan Carpenter said, it comes down to faith. And I don’t see that we’ve been given much reason to have it.
As a Libertarian, I am expected to simply crow the line “privatization always good”. Well, of course not. The details matter. The cases of cronyism are the proof.
Privatization certainly has a better chance of delivering better results, but that’s all it is- a chance. It still has to be supervised by someone with a commitment to cost-effectiveness and a willingness to dismiss those contractors and/or employees who fail to produce.
Mike Kole,
I acknowledge your disclaimer of a doctrinaire approach to privatization and credit you for it, but I still want to question a statement.
What’s “certain” about it? This assertion sounds more like an axiomatic statement than something that is derived from empirical evidence.
I would argue that the only truly “private” markets are ones in stateless areas (like Anbar province in Iraq, perhaps), or illegal ones, like the trade in Schedule I substances in the U.S.
Corporations are chartered and regulated by the government. There is practically always some degree of state interference. It is one thing to assert that all government interference is bad and should be eliminated — which you’re not saying, but it is nevertheless a simple argument — but it is another to assert that the end result of eliminating government interference is “better results”.
Better for whom? Of course the stock answer is “everybody”, but I think most people who aren’t already members of the Chicago School would appreciate being able to turn to real-world data upholding this. Supply-side economics were supposed to work out better for everyone, too.
In this case, the taxpayers have an interest in keeping their tax burden low, whereas recipients of FSSA aid have an interest in maximizing the value they receive from that aid, and the administrators of the privatized FSSA have an interest in maximizing profit. None of these parties are participating in anything approaching a conventional or free market, however — aid recipients cannot shop around for customized aid packages best suited to their needs, taxpayers cannot selectively withhold their tax dollars from aid disbursers they dislike, and the aid disbursers themselves are barred under law from dispensing aid in certain forms or under certain schedules (e.g., they cannot dispense aid in the form of titles to automobiles or an education at divinity school, and they cannot choose to dispense cash aid on an annual basis as opposed to monthly).
I’m just not seeing much of a free market here, which, as I understand capitalist theory, is one of the essential means by which private enterprise is supposed to achieve beneficial ends.
Branden, You’re right in showing that there aren’t much in the way of genuinely free markets. That’s a relative term.
But I was speaking of human nature and human motivation. It’s been my observation, having worked in private business and in government, also having been an employer, that there are some employees who produce and who are self-motivated. Others need prodding. Still others need the fear of losing a job.
Again, just my experience, but government employers aren’t exactly taskmasters, and government employees aren’t exactly production conscious. Not to say that private management can’t lose sight of costs and productivity. They can. However, as employers put up their capital at their risk, they have greater reason to watch the bottom line. No elected official or government manager puts up their own capital at risk to run a particular department or bureau. If it bleeds dollars in government, that’s someone else’s money.
Since you brought up the Chicago School, here’s a clip from Milton Friedman that’s worth viewing and considering in light of this discussion:
http://www.youtube.com/watch?v=Un4-eI1T71E
A private employer spends their own money on the employee. A government employer spends someone else’s money on the employee. It isn’t axiomatic that the best bet is the private employer, but it is the best bet.
Reading the above comments reminds me why I have discarded conservative philosphy. Privatization is a prerequisite to every solution rather than an option..Just ‘cut taxes’..dont worry if any programs ,good or bad, have to be cut as a result.We must never discuss actual programs.. We can’t discuss public education unless we start with vouchers for private schools and the evil of teachers’ unions. What ever happened to traditional american pragmatism?(I think the modern terminolgy is thinking ‘in the box’ or thinking ‘out of the box’) Label it , discredit it, discard it,then do as WE say.
Modern american conservatism in a nutshell.
These days, I think conservatism is more of a brand than an ideology. It may have started as a set of principles, but it turned into a marketing tool such that now “conservative” politicians do not much observe conservative principles.
And, I think most Americans aren’t terribly concerned about ideology. They just want stuff to work. On the other hand, Americans are very loyal to their brands. So, there is a bit of psychic trauma to go through as they have to abandon their brands in honor of their underlying pragmatism.
Brands are sold by marketing,and brands become what the marketing says they are.
Breyers ice cream is a brand that used to be very good and now it isn’t so good ,but it took a long time to change to Edy’s because,we keep hoping and expecting Breyers will be like it used to be.In the end,all we want is GOOD ice cream.
So thanks Doug, I get it!
Doug, I had a lengthy comment on this thread, and it’s gone. Any ideas?
Mike Kole,
That happened to me once recently, too. I rry to remember to cut-and-paste my comment to a text file before submitting it nowadays.
Overzealous spam filter. I recovered it, and now I think it’s showing up as comment #4.
Mike Kole,
You wrote:
This is still reasoning from first principles, not empirical data. The problems with reasoning from first principles are 1) there may be relevant factors missing from your analysis, and 2) buy-in to those principles from others is a much more important factor in achieving your policy objectives.
While I would posit that the modern conservative movement has done much to show how effectively 2) can be achieved with a good propaganda machine, it doesn’t really mesh well with the notion of results-oriented, goal-seeking behavior that free traders are likely to expect from each other.
But I can think of two examples of 1) right off the bat.
Government agencies are not the only entities that “spend other people’s money” to pay expenses. Angel investors, venture capitalists, public stock and bondholders, private equity funds, and good old-fashioned bank loans are all examples of external financing to private corporations. I shouldn’t need to point out that such financing is the norm, not the exception, in today’s economy.
That government employers spend someone else’s money may not disincentivize them to be reckless. Legislative budget wrangling is a hallmark of the Indiana General Assembly and the U.S. Congress (I can’t support an assertion that it’s the norm in every state legislature in the country, but I wouldn’t be surprised if that were the case). Why should administrators of government agencies feel any less beholden to taxpayers via the legislature than private CEOs do to shareholders and other creditors? In both the private and public sectors, mismanagement can result in bad press, lawsuits, and embarassing public hearings before the legislature. (As far as I’m aware, Enron was not state-financed.)
The distinctions between private and public enterprise seem illusory to me. This leaves us back to square one, distinguishing them only by the label, “government” versus “not government”.
I would watch the Milton Friedman video, but alas there is not a freely-licensed viewer available. (Adobe Flash is not free software as in the GNU GPL, and in any case I run Linux on PowerPCs, and Adobe doesn’t even make a proprietary build available for that platform.)