The private sector is more efficient

The recent problems with the Affordable Care Act website has brought the issue of privatization of government functions back to the spotlight. Dale Hanson of the Detroit News in an article reprinted in Huffington Post admits the government got this one wrong -- big time -- but that doesn't mean the private sector does it better. Hanson doesn't explore the private companies that built and botched the ACA website. But he does explore other privatized ventures that have gone bad and provides links to a few more.

One of Hanson's links is to an article in the blog Justice Before Charity with a copyright notice of 2010. The writer is anonymous though the page contains links to "Resources for LGBTQ Catholics." JBC starts us off with the essence of the privatization claim.

It is common knowledge that the private sector is more efficient than the public sector because private businesses have to worry about going out of business, while government agencies do not. The private sector will work harder and smarter, since the need to compete creates incentives for innovation and hard work. Having private companies perform the jobs of government will make everything more efficient.

This common sense is actually entirely wrong.

JBC documents many cases where the gov't paid more to a private company to get worse service than the gov't agency did on its own. I'll skip the individual cases and accompanying statistics and mention broad categories.

Prisons: The gov't may indeed save money. But it is because prison employees are paid less, are trained less, and cut corners on safety. Private prisons have a disastrous safety record and are quite violent places. Prison guard turnover is also quite high. Inmates are not trained for life outside the prison because the prison corporation does not want them to do well in the outside world. Let them commit another crime. They'll be back and we can make more money off them.

Private prisons in Calif. are less expensive to run than publicly funded prisons, but it is because (1) they only take inmates classified as needing minimum security, (2) they do not take inmates with serious mental or physical illness, (3) they don't take juveniles or females, (4) they shift some costs back to the state. If a prison only takes the least costly inmates it will cost less to house them.

Schools: Let parents and students choose the best schools and the bad schools will go out of business. That's the mantra. It doesn't work. In Milwaukee public school education was the same as private schools. Can't claim private is better. Private schools (1) pay teachers less and train them less, (2) refuse most students with learning disabilities, and (3) expel students with behavior problems, sending them back to public schools. Yeah, some of these are similar to the list for prisons. The process of getting students into a private school does get the parent invested in the kid's education. But even with this advantage the private schools are not better.

Healthcare: The nef blog in Britain and its Mythbusters shows a chart of OECD countries (mostly North America, Europe, Japan, Australia) and the relation between healthcare expenditures per capita and longevity. USA is definitely an outlier, spending well over $7000 a person per year. The next closest (not named) spends under $5000 for better results. Britain's National Health Service does a bit better than the USA for half the cost. The difference is that the USA system is mostly private.

General gov't functions: JBC reports most companies that take over for gov't agencies pay their workers sub-poverty wages. That's pay so low the employee still qualifies for Medicaid and food stamps. So the gov't is paying the higher wages anyway.

Many gov't agencies, such as the ones that monitor oil drilling, are given a budget that is too small. The agency is understaffed. Congress declares it to be incompetent and cuts its budget even more. Disasters such as the Deepwater Horizon oil spill happen. What is cheaper, dealing with the blowout or properly funding the agency? Other underfunded agencies include the Securities and Exchange Commission (the Great Recession), weapons acquisition (staggering cost overruns), and the Coast Guard's acquisition (new ships that leak).

Veterans Health Administration: The VHA did not get outsourced. By 11 measures of quality it is the best health system in the world with a lower cost per patient. And it was public leadership that got it from worst to best in 25 years. Now if they could only be funded enough to treat all returning veterans.

There are instances where private business works just fine. In Guatemala the bus system is not run by the gov't. An enterprising person can buy a bus, design and market a route he thinks is underserved, and start driving. But when the free market doesn't work, the gov't must act.

Back to the claim that private companies have to work better and smarter or go out of business. But once they get the fat gov't contract they are no longer in danger of going out of business. The money keeps coming even if they are incompetent. But a poor family still needs to enroll in food stamps and has no alternatives. A public program doesn't work like a business.

Bryan Glick of Computer Weekly in Britain documents a few more privatizing projects that went bad, most of them (of course) related to computer programming. He makes a couple good points. When a public agency fails it isn't because there is a lack of competition or a lack of a market. It is a simple lack of leadership. And:

A private sector outsourcer will look for every opportunity to get new sources of revenue from a contract. A public sector employee - one with good leadership at least - is more likely to be focused on the services they provide.

That is a huge and fundamental difference.

Newsweek reports that there is a huge difference in how the national gov't treats corporate contractors and how it treats non-profit contractors. The corporate contracts are really cushy and if the contractor is incompetent or does something wrong, no big deal. The non-profit contracts are really skimpy (usually not enough to quite pay for the service they provide) and if the contractor does something wrong, they are barred from another contract for at least 10 years. Easy to guess who can afford the lobbyists to get Congress to slant the rules.

To summarize, when a government task is privatized, these are the things that happen:

* Worker pay is cut to the point they are underpaid or are in poverty. Workers are insufficiently trained to properly handle the job.

* Corners are cut so that quality of product or service is compromised or safety to worker, client, society, environment, or economy suffers.

* The contractor accepts only the least cost clients.

* The contractor concentrates on extracting money out of the contract to maximize profits, not to provide better service.

* The contractor no longer worries about competition, competence, or going out of business and acts accordingly.