Tag Archives: privatization

The Shadow Government

A fair amount of my academic research has addressed issues of government privatization–or more accurately, contracting out. (Privatization, as Morton Marcus frequently notes, is what Margaret Thatcher did in England: selling off government enterprises to private sector owners. In the US, privatization means providing government services through for-profit or nonprofit contractors–a very different thing.)

My research has convinced me of three things: 1) while contracting may be appropriate under some circumstances, it is not the panacea that so many politicians seem to think. Sometimes it makes sense, often not. 2) the cost savings that are touted by privatization advocates are largely mythical, the result of omitting the cost to government of contract management–or the even greater costs of failing to manage those contracts. And 3) far from shrinking the size of government, as proponents contend, contracting actually expands both the size and scope of government, while at the same time making that expansion less visible and government less accountable.

Two recent studies confirm those latter conclusions.

A few weeks ago, the Government Accounting Office released the results of its investigation of contracting costs. It found that contracting was often more costly than providing the same services in-house. And just a few days ago, during a debate over a proposed federal contracting rule, the number of of federal contract workers–people working full-time for the federal government who are contract workers rather than federal employees–was estimated at approximately 7.1 million. That’s in contrast to the full-time civilian federal workforce of 2.1 million.  The Economic Policy Institute estimates that 43% of all employees who do the government’s work are employed by contractors. (It further estimates that 20% of that 43% are paid “poverty wages.”)

It isn’t only the federal government, of course. When you add the “shadow” employees working under contract for state and local governments, estimates of the number of contracted government employees run as high as 17 million. It’s impossible to know for certain, because there is very little data available that would allow governments to monitor these workers, and considerable resistance from the business community to the Obama administration’s recent efforts to collect and analyze such information.

It’s very difficult to hold government accountable when you can’t see government at work. Contract workers need to come out of the shadows.

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A Clear Choice

Yesterday, the Indianapolis Star did profiles of the candidates for Mayor, and focused on their respective “visions.” It was easy to agree with Melina Kennedy’s priorities–education, economic development and public safety–but in fairness, despite successful performance as Deputy Mayor charged with economic development in the Peterson Administration, she hasn’t been responsible for public safety or education. That’s an inescapable element of elections–voters have to decide which candidate is most likely to fulfill such pledges. Ballard promised to reduce crime when he ran four years ago, and despite his insistence that being a Marine was preparation for combating crime and managing the complexities of a 21st Century urban metropolis, has been unable to do so.

Let me be honest: there is no way I would vote for Mayor Ballard in November. His manifest lack of background for the job, and his subsequent dependence upon the political insiders who have actually run the city,  determined my vote before I ever knew who would run against him. And I am very impressed with Kennedy–who, I will remind everyone, is NO RELATION. But if I had any inclination to rethink my evaluation of this Mayor, his response to the Star yesterday would have killed it.

Here is the Mayor’s defense of his performance. “After three years in office, Ballard, 56, has faced frequent criticism from Democrats and others that he has lacked a coherent vision. He says they aren’t paying enough attention. He points to efforts to regain control of the city Police Department, privatize parking meters, rein in city and county spending and commit public money to private development projects. And his sale of the city’s water and sewer utilities kick-started his RebuildIndy infrastructure project with $425 million in proceeds.”

Let’s deconstruct that response. He has “made an effort” to regain control of the Police Department. That effort has been visibly, embarrassingly unsuccessful. The FOP endorsed his opponent, backing a Democrat for the first time in 50 years. More importantly, crime–despite some creative statistical spin by the Administration–is up. Worse still, the increase is most notable in the “violent” category. Most significant for the Mayor’s political prospects, people in Indianapolis feel less safe than they did four years ago.

Ballard also cited efforts to reign in spending. He had no choice; the ill-conceived property tax caps made it imperative. Those tax caps are choking cities throughout Indiana, forcing cuts to important services. Incredibly, in the very next sentence following that boast about his efforts to reduce spending, he lists as an “accomplishment” that he committed public money to private development projects. (Not to mention, sports teams and venues.)

Can we spell tone-deaf?

But what REALLY pissed me off was the Mayor’s evidently pride in his decision to privatize water and sewer services and parking meters. I’ve written a lot about these wrongheaded transactions, especially the 50-year giveaway of parking revenue the city desperately needs, and some of the ethical concerns surrounding it. But I’ll just quote a good friend of mine–a very successful businessman, civic leader and long-time Republican: You don’t sell capital assets to fund operations. Businesses that do so are soon bankrupt.

If Ballard’s list of “accomplishments” is indicative of his “vision,” we’d better be sure to elect Melina Kennedy.

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Selling Indiana: Update

This past weekend, the LA Times and the Northwest Indiana Times both had stories about Mitch Daniel’s privatization initiatives.

The Northwest Indiana article reported on the impending default of the private operator of the Indiana Toll Road. While a default would probably not cost Indiana taxpayers–the private operator paid us in advance–it might well cost us what little control we retained over the Toll Road, and depending upon how the default played out, might require some legal fees.

The LA Times article, on the other hand, was the sort of in-depth reporting that has become all too rare nationally, and virtually non-existent here in Indianapolis.  It traced the disaster that was Indiana’s effort to contract out welfare intake, and it is well worth reading in its entirety. High points include a description of ACS ties to Indiana political figures and “movers and shakers”–especially Stephen Goldsmith, Mitch Roob and the Barnes Thornburgh law firm–together with a list of associated campaign contributions, and several examples of the harm done to vulnerable elderly and disabled people who depended on the program.

The Star did do several stories early on, when the failures of IBM and ACS were at their most glaring, and again when Daniels admitted defeat and pulled IBM’s (but not ACS’) contract. And it ran a story when IBM sued the state. But there was no effort to “connect the dots” and nothing even close to the comprehensive investigation provided by the LA Times.

That lack of a full picture matters, because without it, reporters fail to recognize the context within which we must understand related information.

A couple of weeks ago, the Daniels Administration announced that it had received an award from the federal government for cutting the food stamp program’s negative error rate–how often cases are incorrectly closed or denied. The Administration bragged that Indiana’s error rate was below the national average.  The Star dutifully reported the (accurate) claim. What didn’t get reported was the fact that from 2001 to 2007–prior to welfare privatization–Indiana’s error rate had also been below the national average, but in 2008, one year after IBM and ACS took over, the error rate had more than doubled, to 13%.  It was the largest increase in the country, and the celebrated “improvement” was measured from that high point.

Context matters. So does journalism.

Politics and Propaganda

I opened the Sunday Indianapolis Star to a front-page story about Governor Mitch Daniels’ claim that public employees make more than their private-sector counterparts. The article discussed the issue in the “fair and balanced” way we’ve come to expect from “journalists” today, dutifully reporting on the “he said/she said” dueling studies–without bothering to tell readers which studies were sound and which were utter garbage.

I am absolutely confident I could conduct a study demonstrating that people who exercise less break fewer bones–if i didn’t bother to control for things like overall mobility and severity of breaks that did occur. I can see the headline now: Study shows that less exercise leads to better bone health.

There’s a reason academic journals insist on peer reviews.

The Star gave equal weight to two studies. One simply compared overall wages of private and public employees. It found public employees doing slightly better. The other study controlled for factors like education, duration of the workday, etc. In other words, it compared people with similar skills and educational training to each other. (What we used to call “apples to apples” comparisons.) That study–surprise!–did not confirm the Governor’s charge.

The article also reported that Indiana has fewer public employees than it did when Daniels assumed office, and it attributed that decline to privatization. But privatization, an inaccurate term for contracting out for services, does not reduce government employment, except in the very narrow sense of “on the State’s payroll.” If the government is paying someone to perform a task, that person is effectively an employee of the government. It may be harder to recognize that fact, because his compensation is being paid through an intervening party (who gets a cut, not incidentally, called profit), but when government is paying someone for providing services and dictating the nature of those services, that someone is effectively a government employee.

A study that really should be conducted would investigate just how many of these de-facto state employees there are in Indiana. (Several years ago, at an academic conference, a well-known scholar explained to me that the federal government had the equivalent of 18 million additional employees. They weren’t counted as federal workers, because they worked for private contractors, but they were employed full-time providing public services.)

Whether you are a proponent or opponent of government contracting–and as readers of this blog know, I’m firmly in the “it depends” category–this sort of game-playing goes beyond disingenuous. It’s not just inaccurate; it’s propaganda.

It would be nice if we had journalists who could tell the difference.

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When Privatizing Met Public Infrastructure

As readers of this blog know, I’m not a “believer” in contracting-out–what we Americans quaintly call “privatization.” I’m not necessarily opposed to contracting, either–it’s a tool that can be appropriate in many circumstances. Call me an agnostic.

It’s important to examine claims about privatizing, because contracting is too often a form of patronage–a way of rewarding campaign contributors–or, as we’ve seen in Indiana, a way that canny politicians can borrow from the future to provide services that should be paid for from current tax revenues.

When we start privatizing public infrastructure–toll roads and parking meters, for example–it is even more important to ask what the research shows. We know what the politicians who are pushing these deals say; what does the evidence say?

Ellen Dannin is a law professor who is a national expert on contracting, and she has just published an important (and sobering) analysis of what happens when public infrastructure is privatized. In “Crumbling Infrastructure, Crumbling Democracy: Infrastructure Privatization Contracts and Their Effects on State and Local Governance,”
Dannin finds that these agreements typically make the public the guarantor of private contractors’ profits, and ” give private contractors quasi-governmental status, with power over new laws, judicial decisions, propositions voted on by the public, and other governmental actions.”

Well worth a read!


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