Quelle Surprise! New Report Shows Outsourcing State and Local Government Services is About Looting

[marmar]

Quelle Surprise! New Report Show How Outsourcing State and Local Government Services is About Looting
Posted on January 3, 2014 by Yves Smith


For decades, citizens have been sold on the mantra that the hungry private sector can do a better and cheaper job of providing services than “inefficient” government. Now it is true that there were some badly run government entities that have done better when privatized (the poster child is British Telecom). But particularly on the state and local level, where voters demand a high level of accountability, this premise was always dubious.

First, as we’ve discussed at some length, outsourcing in the private sector often fails to deliver on their promises. But those dead bodies are seldom discussed. The fleeced buyer has every reason to hide the botched initiative. And they are often prohibited from discussing them: corporate IT projects, for instance, have non-disclosure provisions. As a result, CIO Magazine used a series of failed state outsourcing deals as a forensic exercise relevant to private sector, arguing that the problems were broadly the same.

But a new report by In the Public Interest, Out of Control: The Coast-to-Coast Failures of Outsourcing Public Services to For-Profit Corporations, shows why voter should regard outsourcing proposals with considerable skepticism. Remember, a corporate outsourcer will have to preform the same tasks as a government body would, plus he expected to recoup his selling/contracting costs and earn a profit margin. As we’ve seen with mortgage servicers, and the Out of Control confirms, one of the approaches used by private companies to meet their profit targets is to cut corners on compliance with the rules and with service levels. And when outsourcing is motivated not by ideology or a belief that savings can be achieved, but by service problems, all too often there’s reason to suspect that the legislation that the supposedly underperforming bureau is executing is cumbersome or poorly thought out. In other words, the problem is being treated as one of government execution, when it’s actually one of bad drafting or overly complicated requirements that won’t go away by fobbing them off to a private company. .........................(more)

The complete piece is at: http://www.nakedcapitalism.com/2014/01/quelle-surprise-new-report-show-outsourcing-government-services-looting.html

[Laelth]

1. k&r for the truth, however depressing it may be. n/t

-Laelth

[loudsue]

2. Outsourcing and contracting is so obviously more expensive for the taxpayers.

Anyone with any sense whatsoever knows that if a company has to make a profit, and the government DOESN'T, that the tax dollars are better spent with the government doing it, by far!

[Shadowflash]

8. I know, right?

I never understood how people thought that giving the same job to an entity whose first and most important priority is to skim off as much profit as possible. after all businesses are there to make money. That is why they exist.

[aggiesal]

10. Because people believe that by privatizing public services . . .

services will be more efficient. And they are willing to pay more for that efficiency.
The problem is they are never more efficient.

I always use the postal system as an example. It costs around 50¢ to mail a letter from one end of the country to the other, but try mailing a letter across the street using FedEx or UPS or any other private delivery service, and it will cost around $10 minimum.

Even Medicare part D was as scam, allowing private companies an additional free 15% profit to companies while the government did everything for 3% overhead total. This is why Republicans are so against Obamacare, because it stripped away this money from the companies and is using this money to subsidize the new insured americans under obamacare.

[xchrom]

3. du rec.

[eomer]

4. But let's also remember that "inefficient" government can be a plus when done the right way.

Some types of efficiency are a social problem, not a solution. For example, the push in private industry to cut staff and then have the remaining people work longer hours for the same salaries is a problem, not a plus. In this age of productivity gains due to technology, having fewer people work longer hours and the rest of them be unemployed is obviously not a good long-term strategy for society.

So if we keep government functions implemented as government operations and then allow the government employees to work reasonable work weeks for a good living wage and benefits then we do a number of positive things by way of this "inefficiency". We put upward pressure on conditions, salaries, and benefits in the job market, we take money that would have gone to a 1%er's offshore bank account (if privatized) and put it instead into the local economy, and we provide a decent living to the employees and their dependents.

So let's not fall into the trap of trying to make government "efficient" except in specific ways that we've thought through carefully and determined that they really are in the public interest.

[Orsino]

5. Even an "inefficient" government has much to recommend it...

...when it keeps more people employed at better wages and benefits than more "efficient" corporations would ever dream of offering.

Government is also more directly accountable for good service. Corporate outsourcers hide behind 800 numbers and shareholder interests.

[Solly Mack]

6. K&R

[Savannahmann]

7. Some things are more efficient in the Private Sector

One example I used last time this issue came up was road construction and repair. The county I live in does maintenance of the dirt roads around the county on a rotating schedule, weather permitting obviously. On a real rain soaked day they'd do more damage than good on most dirt roads.

But for repair projects including resurfacing roads, they put the bids out and then select one of the contracting companies to do the work. Now, how does this save the county money? Simple. The contractor has the equipment, and there is a lot of equipment to repair roads. Grinders that tear up the old asphalt or concrete, and then make a suitably rough surface for the new to go on. Spreaders that take the asphalt and put it down one lane wide. The fleet of dump trucks to get the asphalt and deliver it where it is needed.

If my county invested in that much equipment, and the people to run it, there wouldn't be enough money left to fix one road. The people and equipment would sit idle for a year.

While Ajax Contracting (Made up name, nothing like the usual gang that gets these jobs) works all over the state, meaning that as they finish one contract, they move onto another, in another county.

Perhaps the State could do it, and all roads would be maintained by the State instead of the county. OK, but now what happens if you have more, or less work than usual? Do you tear up roads that have another year or two of service life in them just to keep your people working? Do you let roads worsen because you don't have the people to get to them?

The same is true of bridge construction/repair. The equipment used is very expensive, and most states can't afford to buy them, much less operate them.

Now in these examples, construction inspectors are out and verifying the work and quality of the materials. They sign off on the work being done properly according to code. So there is someone who can be held responsible if there are corners cut.

Ajax Contracting finishes up the road work in my county, and starts on a contract in the next county, before returning here four months later to start on another contract. If Ajax is too busy, and unable to do the work, they don't bid, or they subcontract to Zephyr Contracting to do the job, but again, inspectors are present to make sure that the job is done according to code. If there isn't any work in those two counties, then Ajax takes a contract in the next county. IF there are no contracts, Ajax has to either keep the people on salary, or risk them not being available for the next job. And Ajax will have competitors bidding for every job, and Zephyr construction can do the job too.

The taxpayers and county residents get the work done as cheaply as possible. The county still has road maintenance people for routine work, like trimming trees away from the road, and people with the Government jobs. But for bigger projects you hand it off to a company that is used to doing the work, has the equipment already, and the trained and experienced people to make it happen.

Everyone being a Government employee would be cost prohibitive for the counties regarding road maintenance. I for one would not like to see my property taxes jacked up 50% so that the county can start buying equipment and hiring people to do the road work. I'm betting you would object too, especially when the current system meets the needs, and again is performed according to standards and inspected to insure compliance with those standards.

[aggiesal]

12. Good examples . . .

but these are not services that interact with the public like DMV, postal service medicare service . . .

These are the type of services I would hate to see privatized.

[IDemo]

9. Exhibit A:

http://www.democraticunderground.com/1014687735

[marmar]

13. Thx for the link

[Half-Century Man]

11. Personally, I have never understood the often touted argument

of the hazards of "governmental bureaucracy". As opposed to what? The smooth operation of unfettered business anarchy?

Replacing the cost controlled management apparatus that is governmental bureaucracy, with the highly expensive yet not better moral cesspool that is the modern American business model is somewhat .....stupid.

[marmar]

14. Agreed.

[dixiegrrrrl]

15. PLUS..outsourcing makes accountability almost impossible.

Private companies are not responsive to complaints by us :little people:
and our gov. does damn little in way of accountability.

[ZX86]

16. What I've noticed

Outsourcing leads to private companies either paying way too little or way too much.

In construction type jobs they hire people with questionable legal status and limited skill set in order to pay sub par wages.

Or in the case of privatized military type security work pay employees double, triple, and more what the same person would earn for the same job in the armed forces.

[truedelphi]

17. K & R. Not surprised that such a fine piece is from the

Wonderful Site: NakedCapitalism.com