Everyone’s Privatizing But The Pentagon

The global trend is clear: privatization of government functions is the way to lower costs, reduced budget deficits, improve efficiency and have a better standard of living. The Greek bailout carried with it stringent European Union and International Monetary Fund conditions which amounted to reduced government spending, shrinking that country’s public sector, fewer regulations on business and increased privatization. The recent British elections were a clear referendum on Labour’s economic policies with more than 60 percent of the voters wanting an alternative that emphasized less government. The conservative governments of France and Germany are both pursuing strategies to grow the private sector and spend less on the public one. China’s economic miracle was predicated on releasing the power of private initiative.

The only major institution that has not gotten the memo is the Department of Defense. It is engaged in an orgy of insourcing, which means taking work once performed by private companies and having it done by government workers. The initial impetus for insourcing was the Secretary of Defense’s concern that the government had lost the skilled workforce needed to manage major defense activities, particularly the acquisition of weapons systems. He directed that DoD engage in a carefully crafted program to reduce its dependence on contractor support and recreate the needed government workforce. This made a lot of sense.

However, some parts of the department apparently took the Secretary’s message and the associated written directives to constitute a license to insource every activity they could get their hands on. Many of these actions reflect bogus evaluations of costs which compare the fully burdened price of contracting with a private firm to only the direct labor costs of government employees. Nobody with an ounce of sense does cost estimation in this way.

Some DoD components are insourcing by firing private contractors but hiring their employees to do the same jobs at lower salaries. This is saving money on the backs of American workers. It is dishonest, even immoral.

Apparently, there are parts of DoD that believe the Earth is flat, lead can be turned into gold and the public sector can work cheaper than the private sector. Try telling that to the Post Office, which is relying more and more on companies like UPS because it can do delivery faster and cheaper. When the government owns a job there is no competition. This inevitably increases costs and reduces the incentives for innovation. It’s not that government workers are dishonest, it is just that without competition and the profit motive there is no incentive to try improving processes and performance. Also, you cannot fire government workers the way you can contractors when they do not perform or the money runs out. Just ask California and New York, which were recently told by federal judges that they could not even furlough state workers to close a massive budget deficit.

Everyone knows that defense budgets are going to start declining as the wars in Iraq and Afghanistan wind down and the demand to reduce deficit spending grows. Nevertheless, no sensible person, including now even the Europeans, believe that the way to do this is by growing the public sector and relying less on private initiative and competition. Nobody that is but the Pentagon.