Want a Real Stimulus? Privatize.

My earlier post discussed the new Rockefeller Institute report showing that government employment has been on a slow uptick thus far in the recession, even as private sector employment has dropped by 6.9 million. Beyond the economic implications I discussed earlier, there’s another salient issue here that merits discussion.

As if the employment trend imbalance wasn’t troubling enough on its own, what makes it worse is that a significant percentage of government employees are engaged in commercial activities that are widely provided in the public sector—things like accounting, payroll, IT, human resources, mail, printing, vehicle maintenance, landscaping, and the like. The tendency in government is just to hire someone to do those things in-house, apparently unaware that every single state employee imposes short- and long-term costs on taxpayers. Employee pensions are one of those very significant costs, and even there governments across the country are struggling to fund them. Throw in long-term health benefits and you’ve got a massive obligation.

Overall, government is in many ways like a obsessive DIY addict who doesn’t know when to stop for his/her own good and hire out for a specialist to get the job done right.

Here’s the deal: perpetually rising government employment—which with some temporary exceptions have been the norm over the last 50 years—is inherently unsustainable. And since the private sector can perform many of the same tasks as government employees at a much lower cost, it should behoove policymakers to become smarter shoppers for services and tap good privatization opportunities when they make sense.

This isn’t a small problem. At the federal level, roughly a quarter of employees—over 800,000— are engaged in activities that could be provided by the private sector. In another example, Virginia conducted a survey of state agencies in 1999 to determine what commercial activities were being conducted by state personnel and found that there were 205 commercial activities that were being performed by nearly 38,000 state employees. This accounted for between a quarter to half of the state’s workforce.

This should concern anyone who believes that government should be focused on performing its core functions well and should not be in competition with its own citizens to perform non-core functions. Today, the opposite is happening. Not satisfied with just managing education, roads, police and the other core duties that traditionally define the scope of government, public officials are operating and creating agencies and departments that compete directly with the private sector. State and local governments are literally cutting into the business of business.

Want a real, sustainable stimulus? Start getting government out of the business of business. Start applying the “Yellow Pages Test” and privatize those activities that aren’t inherently governmental. Start right-sizing government by letting the private sector do those things it does most efficiently and focusing government squarely back on core priorities. Start recognizing that just because government decides that it wants to see a service provided, it doesn’t mean that government employees need to be the ones delivering it. Start recognizing that modern public management is increasingly cognizant of the fact that service delivery need not be top-down, but rather implemented via sophisticated networks of public, private for-profit and private non-profit providers.

States and local governments seem to be recognizing this, according to Reason Foundation’s new Annual Privatization Report 2009, but unfortunately the federal government is not. In fact, the Obama administration and Congress are trying to cut private sector contracts and bring more work in-house, which will have the effect of significantly increasing the federal bureaucracy at a time when we can ill-afford it. The feds can certainly stand to get better at contracting, but you’d think that they’d be trying to expand their capacity to do so in order to do more of it, not less, given the federal fiscal situation.

Reason Foundation’s Annual Privatization Report 2009
Reason Foundation’s Privatization Research and Commentary