OMB Reforms More Likely To Waste Money Than Save It

When President Obama declared shortly after taking office that reforms in the way the government buys goods and services could save $40 billion annually, many longtime observers of the federal bureaucracy rolled their eyes. Every new administration launches such initiatives, and they always involve the same bright ideas: using more information technologies, training government workers better, cutting back on cost-plus contracts, etc. Unfortunately, savings seldom materialize because the federal government is a political system, not General Electric. Incentives that would bolster efficiency in the marketplace get distorted when returns are ultimately measured at the polls rather than in balance sheets.

A case in point is the plan to add over 30,000 civil servants to the Pentagon’s white-collar workforce, and eliminate a corresponding number of contractor personnel. The administration contends this will save money and strengthen the professionalism of the federal workforce. That might be true on Obama’s watch, but over the long run the move is certain to increase federal spending because civil servants are almost impossible to fire. That means once new government employees are brought on board, they will probably remain in the federal pay and benefits system until they die, receiving compensation significantly superior to what was given the contract personnel they replaced. Contract personnel are much easier to eliminate once their services are no longer required.

Beyond that crucial asymmetry, many of the negative beliefs harbored by Democrats (and Republicans too) about defense contractors reflect an unwillingness of the political system to accept responsibility for its own failings. Take the example of combat-zone services provider KBR, possibly the most reviled federal contractor in modern history. Few observers realize that KBR generated barely a 2% profit margin on most of its work in Iraq, and that it generally gets high marks from the Army for skill and responsiveness. Maybe it would get better notices if it moved all its worker to Detroit and carried Michigan for the Democrats in the next election. Instead, it is often viewed as competing with a core Democratic constituency — government workers — for jobs, and its treatment by congressional committees is correspondingly negative.