Monday, February 25, 2013

Somebody Help Me Here: Contracting Out

Should the Treasury Department run its own cafeteria?  Was it stupid of Henry Ford to run a limestone quarry?  What, if anything, is so all-fired wrong about putting a prison in the private sector?  Or if it is wrong for the prison, is it also wrong for the hospital?  Should I care that or Hewlett Packard operate as centers of a force field of production and invoice? Should I rue the day when the draft gave way to the all-volunteer army?

DamifIknow, and that's the point. There is a common thread through this stuff and I pull on it, and it snags.  In short, I don't get contracting out.  I get the basics.  I've read Coase:  I know it is all about cost-reduction: we (should?) organize and manage when it is cheaper than buying on the market; if not, not.

I also know (snark alert) what bureaucrats are, habitually: they're lazy and self-absorbed, bent on protecting their turf and aggrandizing their domaine.  Of course I also (more snark) know that private providers are chiselers and wheedlers who care nothing about the product and everything about the bottom line.  I also know that it's a matter of comparative advantage: we should do what we do best and buy what the other guy does better.  

I guess I know that it comes down to comparative advantage: we should do what we do better than anybody else, and buy the rest.  Treasury should not run a cafeteria.  Henry Ford probably was wrong to run a limestone quarry but it's probably not wise to second-guess Henry on matters of organization and efficiency.    Still-- a while back I read Gerald Davis provocative Managed by the Markets (perhaps it was he who got me started on this wheeze).  I got the sense that Davis feels (he didn't quite spell it out) that all this contracting-out stuff bespeaks a calamitous, perhaps even a tragic, departure in our society: that we have lost some essence at the core of our being (Gerald, if you are out there, I apologize for this flight of fancy).

Go back to Milton Friedman, who saw compulsory military service as akin to slavery.  Set him up for a face-off with Jean-Jacques Rousseau, who thought we ought to see military service as a kind of privilege--not just privileged access to pay and bennies, but a privilege in the sense of a chance to participate as a full member of society.    Is this, by the way, why gays battle (heh!) for the right to join the military, why women show so much eagerness to make it to the front lines?   Is this something that Friedman the free market ideologue missed, or something that Friedman the master polemicist seems simply chose to ignore?  Maybe I'm just being coy here: surely we can observe millions who would regard compulsory of service as an infringement on their freedom, yet who regard loyalty, community, yes (ack) patriotism as essential to their being.  Are they simply confused, or am I missing something?   Turned round, how can any libertarian be a patriot?  If we make the state so small as to drown in the bathtub, what is there to be patriotic about?

The army may be a high-salience instance but Davis, if I read him right, seems to feel somewhat the same way about Hewlett-Packard or Nike--that there has to be more to life than just putting your brand on an athletic shoe or, come to that, on a stadium.  I bet I know what he thinks about private prisons.  I wonder what he thinks about the all-volunteer army.   As I write, it's dawning on me that there is probably a whole literature out there, just something that hasn't come my way. Anybody want to tell me where to start?


Jimbo said...

A great essay...well sort of an essay anyway. But, yes, this is all about being a citizen and also about distinguishing between the essential or core objective of a government institution and the supporting services for that institution. So Treasury should not run its cafeteria - but it can set the standards and performance requirements (health, diversity, etc.) for the service. In general, there are not enough performance based contracts, i.e. what is the outcome as measured by our specific requirements and conditions (so you don't get nasty externalities) and figure out how to do this cost-effectively. Government agencies are not designed to do that - their job is governance and policy.

The New York Crank said...

I'll speak (or opinionate) on two matters you touched on.

1. The Draft. The good thing about the draft is it tends to keep us out of some wars, and limit our involvement in others. Few mothers want their sons to go fight a war in a foreign country, much less to die or come back maimed. And only a relatively small percentage of the young (presumably mostly male) population wants to set aside a career so they can risk getting blown to smithereens while living in a tent and pooping in a hole they've dug in the ground. Hence, the kind of upheaval we had in the Viet Nam era -- such terrible upheaval that the draft was abandoned. He we had an all-volunteer army at the time, we might still be in Viet Nam winning the hearts, minds and body counts of the people.

2. Contracting out prison management is a terrible idea because the contractor makes more money if prisoners get held the maximum amount of time for bad behavior. It is in the interests of prison management companies not to enable prisoners to reform themselves, or to learn trades. Recidivism and punitive gulags are their keys to profits.

Come to think of it, beware of privately-owned hospitals. I don't know about you, but my own life is too precious to me to be left in the care of a bunch of guys who do what they do simply because they're out to make a buck.

Very Crankily Yours,
The New York Crank

Anonymous said...

It is like the old saw about how you should 'make your theory as simple as possible, but no simpler'. Contract out as much as possible but no more. :)

Ken Houghton said...

What The New York Crank said about prisons.

The difference between prisons and hospitals, in high concept, is that the incentives are aligned with hospitals--it's much more difficult to get money from a dead person than a live one, or an unhealthy one than a healthy one--so the goal is getting the person healthy at the lowest reasonable cost. (I'm inclined to argue that privatizing hospitals is a bad idea, but not for that reason--the basic incentives are aligned; it's when you get to "lowest reasonable cost" that there is a divergence.)

Short version: privatizing prisons is a first-order mistake. Private hospitals are not.