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Tuesday, October 29, 2013

Outsourcing: public service motive vs profit motive?

The following article doesn't provide as many answers, or analysis, as questions and opinion, but the questions are good ones to ponder. It is important because over the last few decades there has been an historic shift from a predominant shift from procurement of things to procurement of services, and the best model for procurement of services is far from conclusive. Read the article at the link; I've only cut and pasted and rearranged parts here.

Why Private Contractors Are Lousy at Public Services
Excluding military personnel, the percentage of all employed people who are U.S. government employees has fallen from 4.3 percent in 1966 to 2 percent today (add in the military, and that would drop from more than 8 percent to about 3 percent). That’s not because the government is a smaller part of the economy. For every federal employee, there are [now] two people working on government contracts.

Private, competitive provision can be considerably more effective than monopoly public provision. In theory, competitive contracting should introduce private sector efficiencies to bloated, public-owned enterprises. Cross-country experience suggests that, on average, performance under private management is a little better than under public management; private provision is associated with bigger networks that lose less power and collect more bills. A look at outsourcing’s track record around the world backs what the [ObamaCare] website’s snafus suggest: Turning over the delivery of government services to private contractors can cause as many problems as when governments provide those services themselves.

The difference, however, is small compared with the efficiency gap between poor and rich countries. The choice can be ugly: Bureaucrats with limited incentive to deliver and sclerotic ability to reform on the one side; weak regulation of private companies that know more about winning a contract than delivering services on the other. Since private and public provision both have weaknesses, surely the worst model is to attempt some mutant hybrid of the two: Private sector providers operating under layers of labyrinthine government regulatory and procurement processes. That, in a nutshell, describes the U.S. health-care system.

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