One theme you see again and again from the “CEO Governor” (or President) model is annoyance at the legislative process. I expect every executive gets frustrated at one time or another by the legislative body, but it seems much more profound in those executives who fancy themselves as running their government like a business. Gov. Daniels went the power grab route early on in his administration, but seemed to tone that down in the middle years — whether because he got what he wanted, it was more trouble than it was worth, or Democrats took the house, I don’t know.
But, Heather Gillers has a story in the Indy Star about SB 473 which would give Gov. Daniels the power to cut out the General Assembly when making decisions on the creation of toll roads:
The governor would have the sole authority to create toll roads under a bill that has been quietly advancing through the Indiana legislature.
Currently, the law says that the governor cannot (with certain exceptions) approve the location of a tollway without the General Assembly enacting a statute authorizing that activity. The proposed legislation simply makes that provision inapplicable before July 1, 2015. There is a similar provision that applies to toll road privatization.
Paul Ogden suggests that Gov. Daniels has a tin ear on this subject.
The fact is the public has overwhelmingly turned against privatization and its cousin public-private partnerships. People don’t trust that their politicians are looking out for their best interests when privatizing services. They see politicians as using privatization as a new sort of patronage, a way to generate large gobs of campaign contributions from private company seeking contracts.
(It’s also seen as a way of outsourcing political will — e.g. taking a loss in the long term by relying on the contractor to raise tolls where the political body would not.)
As an example, Ogden cites the recent Indianapolis parking meter privatization deal, panned before the fact by the Urbanophile, which seems to be quickly moving from mere bad idea to full-fledged debacle as mayor Ballard has decided to cancel the contract a mere month into its implementation. (fished in by an April Fool’s joke — I still expect this to go from bad idea to debacle, so I’ll leave that part up.)
For more insight into Gov. Daniels’ track record on privatization, it’s worth re-reading Advance Indiana and Carl Moldthan’s report on the Daniels’ administration’s FSSA privatization. As the man said:
There’s an old saying in Tennessee — I know it’s in Texas, probably in Tennessee — that says, fool me once, shame on, shame on you. Fool me, you can’t get fooled again.
Giving Gov. Daniels unfettered discretion over privatization issues is what we in fact call a “Bad Idea.”
That Ballard cancellation of the parking meter fiasco was an April’s Fool posting by pogden. Gotcha!
Yeah, That was Paul’s April Fool’s Day post, Doug. I wish it were true. The part of the story that surprised me was how many states already allow this. “About 30 other states do not require lawmakers’ approval for a public-private road project, according to the National Conference of State Legislatures. Some of those states, however, do require approval from a transportation board or commission.” I have to believe Daniels already has a plan for which roads are to be tolled. I suspect it has something to do with finding more funding for the foolish I-69 project that could be accomplished much more efficiently via the I-70, 41 route through Terre Haute. What really gripes me is how his administration is deliberately stalling completion of the bypass around Terre Haute knowing it will shave about 7 minutes off the commute time from Indy to Evansville and convince people that we should simply upgrade the rest of 41 that isn’t already interstate. The highway plan already calls for adding additional lanes on I-70 from Indy to Terre Haute.
Yeah, Doug, sorry about that April Fool’s joke. I started out pretty tame with what I was writing, but at the end I talked about Barnes & Thornburg representing both sides in a possible lawsuit on the parking contract I thought that would tip people off to the fact it’s was an April Fool’s joke. The sad thing is that B&T has a history of doing exactly that so it wasn’t really much of a red flag.
I marvel at how often the Bad Idea is someone’s Really Big Idea.
• Keep in mind the I-69 project to Evansville will likely take 25 years to complete. I don’t know how old you will be, but I’ll likely be dead and gone when the highway is opened.
• Privatization is often the most economically responsible route to take (pun?). Sadly that fact slips through the thinking processes of those who fail to apply abstractive reasoning.
Taxes or tolls? Think postal service. Every time you buy a stamp you’re paying a “toll” rather than have your tax dollars fund the transport of your correspondence. If you think the postal service is inefficient now, imagine the mess if it were underwritten by tax dollars.
A toll to drive on a highway or to mail a letter is a form of user or excise tax. It frees those who don’t use the product or service from having to underwrite it via taxation.
What’s more, the private sector is almost always more efficient economically.
I don’t think it’s true that the private sector is more efficient in performing government services. That gets thrown around as an article of faith, but I don’t see a lot of examples where government used to provide the service but it was outsourced to private industry, resulting in the service becoming cheaper, better, and more widely available.
Certainly one example doesn’t make a pattern, but the one in which I had some personal involvement went the other way. The General Assembly used to outsource the printing of the bills as they made their way through the session. They brought the operation in-house, having the Legislative Services Agency print the bills, resulting in some fairly significant savings. There was some resistance from former Senator Harrison who had ideological opposition to such a thing and, I suspect, some political connections to the private contractor that had been providing the service.
It’s the latter that so often seems to manifest itself in these privatization deals. The contracts often look like windfalls to well connected businesses. Paul Ogden has put together a pretty good list of what factors should be present when a government decides to outsource – transparency, competition, flexibility, accountability – and so few of them seem to be present with these big privatization deals we hear about.
There is plenty of evidence that supports that outsourcing costs more, however.
Here is an article by someone against single-payer healthcare disputing the very low medical loss ratio of Medicare compared to an HMO (private vs outsourced): http://healthpolicyandmarket.blogspot.com/2007/06/cost-to-administer-medicare-versus-cost.html
Using this person’s figures, even if Medicare isn’t 25% more efficient than a HMO, it is still 4% more efficient! Now, the idea that outsourcing saves money should show the HMO doing better than Medicare, shouldn’t it?
Oh, yeah. How could I forget:
Authorities say the woman who falsely claimed she was raped by Duke lacrosse players has been accused of stabbing her boyfriend in the chest at a North Carolina home.
Durham police say 32-year-old Crystal Mangum was arrested Sunday morning several hours after the stabbing that seriously injured her 46-year-old boyfriend.
http://www.foxnews.com/us/2011/04/03/police-duke-lacrosse-accuser-stabbed-boyfriend/?test=latestnews
BB – the problem is that efficiency is a relative measure. What is efficient for one party in a transaction is not necessarily efficient for another. This particularly manifests itself in monopolies and oligopolies. When a government entity outsources production of a good or service to private industry in a manner that grants them a monopoly, the easiest way for a company to increase profitability is not through efficient operations, but by trading the good or service out of market equilibrium.
Let me illustrate:
A toll road has 10,000,000 vehicles use it with revenue of $5 per car. At that Price*Volume, the operator nets $50,000,000 in gross revenue.
Let’s say that if they reduced the price to $4.90, 100,000 extra cars would use the road. Even if the marginal cost of this volume shift were zero, the operator wouldn’t do it. The operator would gain $490,000 but lose $1,000,000. So it is better for the operator to run the roads at an inefficient market equilibrium because it increases their total profit. If there were a toll road running parallel to the existing one, each firm would lower price and make their operations more efficient until the market was at equilibrium maximizing the price/volume mix. Monopolies discourage that.
This is a concept from any microeconomics text written by anyone: Chicago School, Keynesians, Adam Smith die hards. Doesn’t matter. It is widely accepted fact that monopolies operate inefficiently.
Monopolies are useful for certain goods, however, so they are permitted, but usually with regulation. For example, utilities are more efficient as a whole when run as a monopoly, however the profit incentive for monopolists to deny access requires government regulation. Otherwise an electric generator will run enough wires to feed homes close to generation sources and large consumers of electricity, but the rural? Forget about it. And since utilities need Right-of-Ways to install infrastructure, the barriers to other firms picking up the slack is too high for them to enter the market.
Government outsourcing is useful when used in the right way. When multiple firms compete on price and service everyday, then the outcome can be significantly different. Giving a firm sole control of public infrastructure for 30 years is NOT competition, even if it was once competitively bid. Competition is an assumption that must be integral to a market to have an efficient outcome.
As for other examples of inefficient monopoly? Remember the defense contract for the C130 batch in the 90’s where we had $600 toilet seats? Well, not everyone can build a C130. Only Lockheed can. So the contract is a monopoly granted to Lockheed to develop a new version and build it. Outcome: inefficient. Necessary, maybe. But not efficient.
The overall point is that the private sector is not driven by efficiency. It is driven by profit. If the private sector can use inefficiency to increase profit it will. When a good is traded in a competitive market, then efficiency and/or innovation is the only way to increase profit.
What’s more, the private sector is almost always more efficient economically.
Someone better tell the private sector vendors who just gave me prices to outsource two functions at my government unit. They both cost more than I spend currently, use a more transient, less competent workforce and provided less service.