Hollowing Out The Federal Government

A recent article by two notable scholars of government, Don Kettle and Paul Glastris, reminded me of my old preoccupation with what Americans erroneously call “privatization.” I began to research the issue after watching the very uneven results of then-Mayor Goldsmith’s love affair with the concept. (A search for the term “privatization” through the archives of this blog will return a number of detailed posts on the subject.)

My skepticism begins with the misuse of the term;  unlike actual privatization–which would involve selling off government operations and allowing them to sink or swim in the marketplace (a la Margaret Thatcher), Americans use the term to mean government “contracting out” for goods and services. There are obviously times and tasks where contracting makes sense. My concern is that government isn’t a very good judge of when and what those are. Contracts with units of government are qualitatively different from contracts between private actors, and those differences make it far more likely that the contracts ultimately negotiated will be unfavorable to taxpayers.

And of course there’s the predictable “crony capitalism,” contracts rewarding campaign donors with lucrative contracts at taxpayer expense.

A few years ago, I came across data suggesting that the federal government actually pays the salaries of some 17 million full-time contract workers who aren’t technically government employees.

A number of the problems created by extensive federal contracting are the subject of the linked essay, titled (tongue in cheek) “To AOC: Only you can fix the federal government.”

You and other progressive leaders have bold ideas for how government can help people and save the planet. The Green New Deal. Medicare for All. Free college. A massive investment in public housing. We aren’t in full agreement with that agenda, but that’s not our point. Our point is that to achieve your goals, you’re going to need a federal government as robust as your ideas. And right now, you don’t have it.

Instead, the government agencies you’ll need to carry out your policies are a disaster waiting to happen. Like the infrastructure you and others rightly say needs rebuilding, our federal bureaucracies are a patched-together mess that can barely handle the weight of the burdens already placed on them.

The essay pointed to specific examples, including the GOP’s assault on the Internal Revenue Service.

In 2004, George W. Bush’s administration turned the job of collecting the hundreds of billions of dollars that tax scofflaws owed Uncle Sam over to private collectors, with the idea that they could do a better job than federal workers. The private collectors brought in money—but just $86 million, and most of that was from easy-to-collect cases that began running out after just a few months. Then the IRS brought the work back in-house, and its agents collected almost two-thirds more money in just a few months, and it came from the harder cases the private companies had left behind. Relying on private tax collectors actually ended up costing the federal government money.

But the Republicans weren’t done. They slashed 20 percent of the IRS’s budget and 22 percent of its staff from 2010 to 2018. For people making more than $1 million, the number of tax audits dropped by 72 percent—and the money the IRS collects from audits fell by 40 percent.

Government operations stymied by a lack of skilled in-house personnel include–among other things– the government’s inept handling of refugees and the (mis)management of Medicare and Medicaid ($103.6 billion in improper payments in 2019 alone).

The list goes on. Click through and read the litany, if you want to set your hair on fire…

What the essay makes clear is something that far too few citizens recognize: it isn’t enough to have good policies. Passing a law to do X or Y is only the start; the unit of government charged with administering the law or program needs sufficient resources to do so. Those resources include adequate numbers of well-trained employees and skilled supervision– virtually impossible when contractors are providing the bulk of the services.

We’ve long relied on service contractors beyond the point of reason. We now have contractors who do more or less the same work as civil servants, sitting in the same offices, for years on end, typically at far higher cost, often using government email addresses so it’s impossible for anyone on the outside to know whether they’re dealing with a government official or a contractor. We have contractors who oversee contractors, contractors who write policy for government officials, and federal contract managers who are too few in number and too outgunned in skills to manage it all.

The hollowing out of government’s management capacity is the result of the GOP’s persistent attacks on the civil servants who work for it.

It has to change.


  1. This reminds me of a story my partner told of union duties at the AM General plant in Mishawaka years ago.
    You had your job to do, and that was ALL you did.
    If you wanted to move a fan, you couldn’t do that yourself, you had to call another person who was authorized to move fans.
    And the fan mover had to get permission from HIS boss before he could move the fan.
    The list went on and on.
    What a waste of time and money, and a far cry from what I understood unions to be at the turn of the last century.
    We humans seem to complicate the simple.

  2. Back to the IRS…. It is my understanding that the collection division returns 10 dollars to the treasury for every dollar they cost the treasury. So THAT was the division the Republicans went after. So blatant that they really did NOT want to save money for the government but to make CHEATING easier for their Republican donors and the wealth tax cheats like Donny Trump and Jarred.
    Not mentioned in today’s post: PRIVATE PRISONS. I sure hope the Biden administration will STOP placing any federal inmates in the for profit prison complex.
    Perhaps they can also transfer those already in the “for profit” prison system OUT. “Prison for fun and profit” is a scheme that only the Republican mind can embrace. Lets kill that mess NOW.

  3. No sense in repeating myself, so I’ll just drop this from Wikipedia’s paragraphs written about “Dictatorship of the bourgeoisie” which captures our economy rather well:

    “Marxists, communists, as well as some socialists and anarchists argue that liberal democracy under capitalist ideology is constitutively class-based and therefore can never be democratic or participatory. It is referred to as bourgeois democracy because ultimately politicians fight only for the rights of the bourgeoisie.

    According to Karl Marx, representation of the interests of different classes is proportional to the influence which a particular class can purchase (through bribes, transmission of propaganda through mass media, economic blackmail, donations for political parties and their campaigns and so on). Thus, the public interest in so-called liberal democracies is systematically corrupted by the wealth of those classes rich enough to gain the appearance of representation. Because of this, multi-party democracies under capitalist ideology are always distorted and anti-democratic, their operation merely furthering the class interests of the owners of the means of production.

    The bourgeois class becomes wealthy through a drive to appropriate the surplus-value of the creative labours of the working class. This drive obliges the bourgeois class to amass ever-larger fortunes by increasing the proportion of surplus-value by exploiting the working class through capping workers’ terms and conditions as close to poverty levels as possible. Incidentally, this obligation demonstrates the clear limit to bourgeois freedom even for the bourgeoisie itself. Thus, according to Marx parliamentary elections are no more than a cynical, systemic attempt to deceive the people by permitting them, every now and again, to endorse one or other of the bourgeoisie’s predetermined choices of which political party can best advocate the interests of capital. Once elected, this parliament, as a dictatorship of the bourgeoisie, enacts regulations that actively support the interests of its true constituency, the bourgeoisie (such as bailing out Wall St investment banks; direct socialisation/subsidisation of business—GMH, US/European agricultural subsidies; and even wars to guarantee trade in commodities such as oil).

    Vladimir Lenin once argued that liberal democracy had simply been used to give an illusion of democracy whilst maintaining the dictatorship of the bourgeoisie, giving as an example the United States’s representative democracy which he said consisted of “spectacular and meaningless duels between two bourgeois parties” led by “multimillionaires”.”

    Yes sir!! 🙂

  4. “The hollowing out of government’s management capacity is the result of the GOP’s persistent attacks on the civil servants who work for it.”

    Semantics! Privatization or outsourcing? Whatever you want to call it; it costs private citizens when you get down to where the cheese binds. A little background here. Let’s look at Indiana Public Retirement Services (INPRS) and the current Republican screwing of all state retirees regarding our retirement benefits which we paid into during our working years. Which incidentally was required if you wanted to keep your job and includes public employees, teachers, judges, police officers, firefighters, Excise, Gaming & Conservation Officers, prosecutors and legislators. We were notified in November 2017 that beginning January 2018 we would be receiving our monthly retirement check from State Street Retiree Service, a division of State Street Bank. Contacting my then Representative Dan Forestal’s office I was informed this was not privatizing, they only changed that service from the private company which had been providing this service for the past 3 years. We had to re-register our retirement information to State Street Retirement Services IF we wanted to continue receiving our monthly retirement checks.

    We received our last retirement COLA in 2009; that was the first year we received our 13th Check which replaced COLA, a set amount once yearly with the amount based on your number of years of service. That amount has never changed; Retired Indiana Public Employees Association (RIPEA) has fought the Indiana Legislature to protect our retirement and maintain that 13th check for years, in recent years they have attempted to get us an increase in the amount of the check. This year the Indiana House passed the bill maintain and to add $50 to those once yearly checks. The Indiana Senate denied the raise and ended the 13th Check to award us a 1% COLA to the monthly amount of our retirement checks, a lower amount than the 13th Check. Last week we received a letter from our RIPEA asking us to write letters to our Legislators, telling them how and why that 13th Check is important to us.

    So; does the privatization or outsourcing to private companies to disburse our monthly checks have anything to do with this loss of a portion of our retirement? Someone has to pay State Street Retiree Services for their mailing services and I believe we Indiana retirees are the ones who just received that bill.

  5. Responding to a few days ago—
    One of my biggest concerns about our democracy—and whether it will even continue to be a democracy—is the attempt to restrict voting rights. One thing I have in the past been involved in is Indiana Vote by Mail. If everyone has the opportunity to vote, then everyone wins. I believe voting by mail is a solution.

  6. As it turns out the Marxist government run by Lenin was no better than the oligarchy run by the Czars who came before. Good government comes from the good people who provide the services. The cronies don’t just exist under capitalism. The exist in communist and socialist societies as well. They are detrimental to all.

  7. On a local level and as a public employee and proud union member for 42 years I can attest to the farce of “privatization” forced upon us to “compete” here in Indianapolis under the Goldsmith administration. The effects are still reverberating our company even today surrounding this experiment! One major causality was our employer sponsored DB pension plan ( what is left of it) that currently is a dying plan and was replaced with a money purchase plan 401a. One can only assume there are many issues similar though out the governmental programs similar to this effort i that believe is nothing more than a attack on public sector unions. I for one think public employees given a level playing field with competent management can provide the service as well or better than the private sector in many cases.

  8. I can attest to the excessive cost of contractors. I was a sub-contractor (a SUB-CONTRACTOR!) with a federal department for a couple of months a few years back. My gross compensation, annualized, was $260,000. Granted, I had to cover my own taxes and expenses (which were deductible), but that was still over twice what hiring a FTE would have cost (the gig was around a GS-13 or 14 level). And the prime was billing half again if not twice my hourly rate.

    But wait! There’s more! About half the folks in our office were contractors. Key management changes every two or four years, and contracts renew then and in between. At those points, individuals don’t know if their jobs will continue. Morale sucks for a couple of weeks, and that ultimately affects work, despite the dedication of individuals. And if the prime changes, a new crew has to be trained in, and that absolutely affects the quality of work.

    All so the GOP can lie about “shrinking” the federal government on the one hand, and complain about dysfunctional government on the other.

  9. I’m thinking Peggy needs to spend some time in the History section of the USSR/Russia. Both Lenin and Stalin died in office and the country accomplished many great achievements like repelling the Nazis.

    Stalin ordered the killing of Leon Trotsky after exiling him because of his criticism.

    As for the comment about the two different systems, capitalism is controlled by the wealthy. Socialism is controlled by the workers/citizens. The difference is extremely significant.

    As we’ve learned in this country, we can send “good people” all day long into a bad system and guess what happens?

    As a scientist who also knew the human mind very well, Albert Einstein, called both capitalism and communism, “Evil” because of what the systems did to human beings.

    It’s ironic because Thomas Jefferson was a strong advocate of the free press because he also knew human beings. He was scared that the wolves of wall street would quickly convert the government to a system of wolves unless the free press held them accountable.

    Google Jefferson’s letter to Edward Carrington. Very enlightening with much foresight.

  10. This could be a very winning issue for DEMS. A REAL study of government/contractor efficiencies.

    I seem to recall a study some years ago by the Washington Post looking at the tens of thousands of IT contractors used by the government, many with duplicative work and little accountability and wasting tens of millions of dollars. Imagine a REAL study of WFA! No way, too many DEM politicians caught up in pay to play. And we wonder why respect for the government hovers around 15%?

  11. I have often wondered about the contractors with the Defense Dept. How much money is wasted on the contractors? How much fiscal inefficiency thrives in the Defense Dept. which contributes further to the enormous deficit of our government?

    Many people are looking for good paying jobs. If we stopped using contractors and instead hired civil servants who had good health insurance we might reduce the number of unemployed people and uninsured people. And what about having each citizen serve in some government service for a couple of years or maybe even five? If our government ever decides to fund college education,perhaps the graduates should labor for the government. Maybe they could work part time while completing their education.

    I have not received my 2nd stimulus check from the IRS. I just wrote my representative about this. A friend of mine represented by Andre Carson stated they helped her get her much needed 2nd stimulus check. This simply demonstrates that the IRS is badly underfunded and understaffed.

    Insanity definition- Doing the same thing over and over again and expecting a different income. Evidently Republicans and yes, even some of the policies proposed by Democrats fit the definitionof insanity. They keep contracting out despite the higher expense and lower quality of service. Yeah,that’s insane.

  12. You get what you pay for!

    A contractor will always pitch fiduciary responsibility to get their foot in the door. And that is always the same pitch by their company sponsors!

    And, those who make the decisions to bring in contractors, have other agendas concerning replacement of federal employees. They want to shrink the unions power in government, and therefore votes for the opposition!

    Also, there is a much easier chance of shenanigans and palms being greased and bank accounts padded when it comes to contractors. Pay to play!

    It was the way it was in my place of employment for a major electrical utility who is now under investigation and indictment in Illinois. Many of us saw what was happening, contractors replacing employees and those contractors paying for expensive trips, doing house repairs, amongst other things for company management.

    Now they got caught, and of course they blame folks who are no longer around for starting this chain of events, although, they have a hard time explaining why they went along with the blatantly illegal conduct!

    It’s all the same, you want better value for your dollar, you’re always going to go in house! Contractors are good for construction, repairs, even transportation, but for day to day operations? It’s always best to go in-house! I’ve never seen a contractor yet that was more cost-effective than in-house.

    And, with in-house it was always easier to drop a dime on shenanigans than if you had to deal with contractors, because you never knew who they had in their pocket! What’s the first thing that goes when they start outsourcing? HR! Everything else ends up to be gravy, because now there is ample Grease for those slippery fish.

  13. I used to be a big fan of privatization. (I don’t understand why your definition of privatization as requiring assets to be sold off as opposed to contracting.) Contracting out of services to the public sector was intended to create competition in the delivery of those services. Companies would compete to win contracts, and if they failed to do a good job, then a new company would come in.

    I was naive. While privatization via contracting looks good on paper, in practice it failed in many areas spectacularly. I didn’t see government handing out long contracts to companies that would mean those companies didn’t have to worry about competition for years. I didn’t see that government officials, plied with political contributions and employment opportunities with the private contractor, would refuse to hold the contractor responsible for providing quality service.

    In Indianapolis, we handed out a 50 year contract to ACS to run the city’s parking meters. ACS, once it had the contract, in hand didn’t have to worry about providing quality service. And I won’t even get into the sweet-heart deal ACS received due in no small part to its political corrections.

    Also, bad is the privatization of corrections. In Marion County, that includes Jail #2 run by CCA (the company has since changed its name.) As an attorney, I litigated several cases involving CCA. The jail CCA runs is a hell hole, tons of legal and contractual violations. We pleaded with Sheriff Anderson to intervene and hold CCA accountable, but he would not lift a finger even though it was expressly his job under the contract Things were a bit better under his successor, but still the amount of monitoring and supervision of the CCA contract wasn’t sufficient.

    My views on privatization has soured because I’ve lost confidence in politicians holding contractors responsible. One thing that would help is a ban by the state legislature on long contracts entered into municipalities. Contracts should be limited to 10 years or less. Still, even with a ban on long contracts, I don’t have confidence in our politicians doing the right thing when it comes to privatization.

    That’s a problem – once a contract is given, politicians don’t want to hold the company responsible for following it.

  14. Marx correctly diagnosed the problems but prescribed the wrong medicine to solve them. Labor, after a short New Deal respite, is still undercompensated to this day, whatever the ism.

    Personally, I think at this stage of our morphing from the Industrial to the Information Age that a well regulated capitalism can work. It’s a possibility. Trouble is, politicians cannot agree on the degree or even the definition of “regulation.” Wall Street calls any such significant attempts to regulate “socialism” and have managed to make that particular ism a dirty word, as though any ism in a given time frame as applied to the conditions of that day cannot be “dirty” in its effects.

    Czarism v. communism? We may now be living under a form of Czarism what with the overcompensation of the rich and corporate class for their contribution to the economy and just enough poverty wages to the working class to keep them available to enhance the bottom lines of the overpaid titans of commerce and their crapshooting Wall Street financiers.

    To the topic today > Republicans are uniformly for a return to “small government.” Why? Could this be a mere cover for increased privatization, i. e., the smaller the government the larger the need for government contractors who, uh, happen to contribute to their political campaigns? Nah, perish the thought!

    Republicans also harp about “spending,” but such complaints upon examination are selective. Thus trillions in tax cuts to the rich and corporate class along with generous appropriations for “defense” (read hundreds of billions per annum to Boeing and other giant defense contractors, some of whom pay no taxes) find favor with Republican politicians while health care and increases in the number of our auditors for the IRS which would bring in billions in tax revenues from their rich contributors are, uh, “socialist.” Note to Republicans > You are projecting. Immense tax cuts to the rich and corporate class are redistributions of the wealth and are socialist, so if you want to identify those who are socialists, look in the mirror.

    Conclusion: We need more economic guidance from Piketty and Stiglitz and less from Friedman and his Chicago School in determining wage and tax policies. These Republican socialists are spending us into oblivion when they give our tax money away to the rich and corporate class in trickle down exercises with no provision for paying for it or via any other visible return on such giveaways. They should eschew “spending” and adopt Biden’s plan of “investment,” where by investing in people’s health, enhanced wages etc. we can see the result – a booming economy in which greatly increased tax collections will help pay for such investments, all in tune with the views of my all time favorite economist John Maynard Keynes’, views, which as applied here are, as usual, on the mark. So can capitalism work for the long term if regulated to serve all contributors to the economy? Probably. Can it work for the long term to serve all contributors to the economy as currently practiced and without reform? No way. . .

  15. No oversight of contractors, no oversight of government programs…at least they (politicians) are consistent. And they are consistent with our culture starkly becoming all about ME and what I can get away with: L-I-B-E-R-T-Y. Any wonder that The Former is seen as an example, a hero?

  16. Lenin lasted 9 years, before he died in office. During that time, he created the USSR, but Russia remained a poor country. Stalin was in office much longer (1927 to 1953). While he did drive the Nazis from Russia and add a nuclear capability to his arsenal, we should look at both accomplishments through a clear lens. Germany greatly overextended the capabilities of its armed forces by invading Russia. If you want to invade Russia, even a mediocre general will tell you it has to be your primary focus and it has to be done quickly, before winter sets in. The Germans seriously underestimated the patriotic fervor of the Russian people and as they began to starve, they were beaten back. The nuclear achievement was done through stealing the work of the Manhattan Project. Stalin wasn’t re-elected because the people loved him, but because he had total control and he was the most ruthless of Russian leaders, and that’s saying something, considering some of the rulers of Russia. If you defied Stalin, you might be dropped from a window or you might just disappear.

    I’m not sure who needs a history lesson.

  17. An excellent post, Sheila.

    Our problem is religion. I don’t mean the rise of fundamentalism. I mean the religious belief that the private sector is the god-ordained (or Ayn Rand ordained) vastly superior answer to every question in every sector. The unquestioning belief that the private sector does it better has led to outsourcing where it wasn’t needed, and crony capitalism did the rest where outsourcing might have been a good idea.

    [As my repeated aside on “religion” in economics, “conservative think tanks” have in their mission statements that they have the answer, laissez-faire, and then look to prove that it solves some issue. Starting from the solution is one of the differences between science and religion. To be fair, “liberal think tanks” have their biases. They make liberal assumptions in defining problems and ask how they can solve them. They don’t start with answers.]

    Beyond that, we have the Republican “starve the government” ideology. If you destroy unions, eviscerate the government, and limit torts actions (for good measure), the rich and powerful can do whatever they wish. Adding control of the courts has been a nice recent touch, but I remember Reagan coming in, slashing jobs, declaring that government is corrupt, and putting in the very corrupt Samuel Pierce as HUD Secretary to prove it.

    Sometime in 1987 or so, a column in the Washington Post documented how many tens of billions of dollars were lost due the statute of limitations on underpaying taxes, and the loss of auditors at the IRS. A triumph for Reaganomics.

    Gutting the government and outsourcing as much as possible has been the religious belief of the GOP since at least Reagan. A sad belief.

    Oh – one more anecdote – Keane was a consulting company that I had worked for almost a dozen years. They used to allow unlimited sick days, under the assumption that we were adults and would behave accordingly. They had bought several smaller companies (a typical way to “grow the business”), including one in Virginia with government contracts. Those Virginia workers were taking 30-60 sick days each year. They weren’t fired, but the sick leave policy was changed to five days, no matter what.

  18. One myth that the Republican Party now absolutely worships is that every institution not run by Republicans is wasteful. Only they are tough enough to beat lazy others into working for tight-fisted organizations that work people to death by cost-cutting. Their greatest example is government because they have to share the running of it with lazy no account undisciplined Democrats and people different than they.

    Of course, a few learn that effective organizations are those with a motivating purpose that give and take what people need in order to live up to their full potential because they are proud to be part of it.

    Institutions are stable because they continuously justify all stakeholder’s faith in their value. People want to be associated with them and are proud of and loyal to them. The teachings of the Republican Party now do not honor that truth. The party sells power over others rather than pride for everyone.

    That creates a race between power and failure of the whole institution. Can the party stay ahead of the game and gain the power to satisfy themselves at everyone else’s expense or will the social instability inherent in power politics crash everything first?

    Stay tuned.

  19. My biggest gripes about privatization (and my list is a long one) comprise prisons and public utilities. There simply are some things that should not be run as for-profit industries and these lead the pack. Private prisons lead to higher incarceration rates, because the more prisoners you have, the more money you make. Quality of food, healthcare, etc., while imprisoned are inconsequential, as long as CEOs get their bonuses and shareholders are happy. As for the utilities, they used to be public utilities for a reason: they existed to serve the public. They weren’t intended to make a profit. It’s revolting to see foreign interests operating our water and electricity, making money hand over fist while rate payers are rendered powerless (no pun intended) because we NEED those things. Sadly for us hoi poloi, the Repubs have long believed that if an entity doesn’t make a profit, such as public transportation, it must be relegated to the scrap pile.

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