Outsourcing government-monopoly jobs is not privatization

The proposals to turn over more responsibility for the state’s troubled mental health and probation systems to private agencies are not examples of privatization, but a continuation of the poor management, bureaucratic incompetence and political cronyism that pervades North Carolina state government.

The current concept of “privatization” is to award government monopolies to special interest groups who have spent enough money to gain access to the state leaders who award these contracts. When this influence-based system fails, these same leaders are quick to blame the failure on the free market system, and demonize their private contractor cronies as evil profit-seekers.

This is not privatization at all. It is corporatism, “pay-to-play” politics masquerading as reform.

Corporatism is a system where businesses are nominally in private hands, but are in fact controlled by the government,” said Rep.Ron Paul (R-Texas). “In a corporatist state, government officials often act in collusion with their favored business interests to design polices that give those interests a monopoly position, to the detriment of both competitors and consumers.”

Business interests include special interest groups, lobbyists and labor unions, and it sometimes is unclear who controls whom, who is “calling the shots.” What is clear, however, is that the people are not part of the system.

The problems in these state agencies are text-book examples modern American corporatism, the symbiotic relationship between state officials, legislators, lobbyists and special interest groups. The current state secretary of the ‍health and human services was previously a lobbyist for private contractors working for the agency he now heads. He named a fellow former lobbyists as mental health director who within days of this appointment, he resigned when the media reported on financial irregularities in the mental health advocacy group he headed for 24 years, a group that represented service providers and patients.

Meanwhile, people have died while in the care of state-sanctioned providers, yet no one has been charged with a crime. Some lower level workers were disciplined, but the upper level administrators are reassigned, or allowed to retire.

True privatization is a competence-based system. It is not simply transferring tasks previously performed by government employees to private for-profit firms, but finding the best agency to provide the service.

Before the process even begins, however, this question needs to be answered: Is this a service the government should be involved it at all? In most cases, libertarians would say no, but if the answer is yes, then the primary consideration from there on should be what agency is best suited to provided the best quality service and the lowest price.

For example, many services considered traditional municipal responsibilities could be more provided more efficiently and at less cost by private companies. These include water, sewer and sanitation services, parks and recreation departments and public transpiration.

True privatization involves applying the discipline of competition to the public sector. Properly implemented, it is even possible that a public sector agency could prove to be the best provider of a service.

The key to the strategy is to rethink the role of government from that of being the provider of first resort to that of being the provider of last resort. Government should focus on being a purchaser of services from whatever public, business, or nonprofit group can provide the best and cheapest service. In other words, government should act just like the average consumer does when they are looking for goods and services.

The problem is that in order for this to happen, two basic prejudices must be reversed.

First, government managers need to learn a different work incentive. In a government monopoly service, the primary incentive for managers is not to do the best job at the least cost, but to preserve and protect their salary, staff and budget. If a government manager economizes and produces service more efficiently and at less cost, they probably will have their budget and staff cut. In effect, good managers are penalized for good work.

On the other hand, if a government manager goes over budget, if they are wasteful, inefficient, or incompetent, there is no penalty. The government simply moves money from other accounts or raises taxes to make up the deficit. In effect, poor managers are rewarded for poor work.

Private sector managers likewise hope to increase the salaries, staff and budget, but unlike government managers, if they fail they lose. A private company must increase the demand for its goods or services by constantly improving quality while lowering cost. In the private sector, poor managers are demoted or fired.

The second prejudice that must be overcome is to redeem the word “profit.” Profit is not evil. Sure, successful businesses make a profit, sometimes a large profit. But they also create jobs and provide quality goods at low cost.

Sure, there are companies that make shoddy products and defraud people. But educated consumers can remedy that by not buying the product or service and going to a competitor, something they cannot do with a government-run or government-sanctioned monopoly

Profit in a government agency occurs when it provides a quality service at the lowest cost. The taxpayers get the profit. Any government manager who can accomplish this should also reap the benefits of this profit through a raise or promotion. Any government agency that fails to provide quality service at low cost should be abolished.