Saturday, January 14, 2006

The myth of the private sector

Whenever I hear people complaining about how inefficient, ineffective or incompetent some government agency is, I understand the frustration. I really like it when things work well on both a technical and moral level, so I understand it when people think that an alternative could be better. But this requires us to consider the distinction between possibility and probability. I submit that most of the time, when we are evaluating alternatives, "possibility" really doesn't matter. After all, anything that isn't impossible, is possible; however unlikely it may be. What we should really be considering when we compare uncertain alternatives is "probability". Which is more probable or more likely to achieve the result we desire?

When exploring alternatives to the frustrations with government-run agencies, people often recommend that we reap the benefits promised by private enterprise. Let the private sector handle it, they say -- privatize it! They are convinced that it will be "better" i.e. more efficient, more effective and more competent. But I'm not so quick to accept that position. I have observed that the goal of doing a job well is not always consistent with the goal of making a profit.

It would seem to me that the first task is to determine which tasks should be done in-house (i.e. by government agencies) and which should be contracted out to non-governmental firms and, in making this decision, we should use criteria which clearly reflects government goals. But in either case, the risks of inefficiency, ineffectiveness and incompetence exists. The solution to these problems is to fix the actual problem. If we have decided to do something in-house and it's not being done well, the first step should be to determine why and correct it. If someone can't drive well, we don't get them another car. We teach them to drive or replace them with someone who can drive. If there are problems with government agencies then fix them. Good management, technical competence and accountability will usually suffice.

We might want to ask ourselves to identify the areas that we are talking about, and specifically, why there currently is not a private presence there. It would seem that this is most often the case in areas which are not natural profit centres -- in areas where there are no legal profits to be made or ones in which one could not ethically limit one's business solely to those who could pay. Imagine providing law enforcement, health care, education, postal/communications services, making regulations, providing infrastructure (roads & highways, garbage collection & disposal, safety inspections, weather services, search & rescue, social services, and on and on) only to those who paid for it.

There are certainly profits to be made in providing these services to those who could pay but the mandate of our government is to provide these services to all of us and, in many cases, those who need these services most cannot pay for them at all. We want the service levels to be consistent for everyone. It's done for the public good; we do it for us. If you think about it, there is no way that any free-enterpriser would start a business to protect the personal safety of, to provide health care for, to offer guidance or counseling to or to provide and maintain roads for people who didn't have means to pay.

The private sector is the sector where individuals look out for themselves. Often there is a mutual benefit and both (or all) parties profit but the marketplace is a heartless beast -- efficient at allocating scarce resources but indifferent to the fate of anyone who brings nothing of value (no saleable goods or services) to the market. But something that lovers of the free market forget is that, without the regulation of the private sector by the public sector, the free market would quickly descend in the chaos of the jungle from which is arose. The free market is not really free -- it is regulated and that regulation costs something.

The public sector is the sector where individuals as members of the group look out for the public good. It's not me looking out for me (the private sector), it's not me looking out for you (philanthropy) but, rather, we are working together to look out for all of us -- especially the least among us and we never know when that might be us.

It would seem that in a civil society, the matters of the public sector are best left in the hands of the government and the private sector best left free to pursue it's heartless efficiencies within the regulations established by the government. However, when it comes to performing the business of the public sector, there may be something to be said for "contacting out" the tasks to the private sector. After all, Why re-invent the wheel? Why not take advantages of the scale and efficiencies of existing organizations?

These are not rhetorical questions. I think that there are cases where there are reasons to do it in-house i.e. have the government agencies do the work. The primary reason is that the private sector will make a profit and that adds to the cost. Often the scale of the tasks to be done for the government are large enough that, the economies of scale will be realized by the government and, without having to "give a cut" to shareholders of the private firm in the form of profits, it will be cheaper. The case for re-inventing the wheel is that the private sector wheel was designed to optimize profits, not necessarily to provide the best service to the most people nor to achieve some of the more subtle goals that governments seek to accomplish.

While there may be cases where the government must "contract out", the reasons put forth by advocates are often less than noble and it is by no means a panacea. The inefficiencies, ineffectiveness and incompetence manifest themselves differently but they are no less real as Matthew Yglesias says:

One would do well to note an ideological point here. Abuse of the government contracting process is bad, and perpetrators of wrongdoing should in no way get off the hook. Nevertheless, the entire concept of farming government out work to private firms is a more-or-less open invitation to corruption. There are instances when contracting is the only reasonable solution. But for some years now -- predating Bush, predating the DeLay era -- all the pressure has always been to privatize more and more government functions. The theory is that the private sector is more efficient than the public sector, so contracting functions out to private firms should save money. The reality has had a lot more to do with union-busting, machine-building, and "honest graft" than money saved or improved efficiency.

The only defense against inefficiency, incompetence and corruption is the personal integrity of each of us in every role we play. It's that easy or that impossible, depending on how you choose to look at it.

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