Thursday, June 25, 2009

Privatization versus Sub-Contracting

It happened in an internet forum that someone tried to use sub-contracting as an example of how privatization doesn’t work. However, sub-contracting doesn’t work as an example of privatization.

The State of California, in trying to manage a state park owned by the state government, hired AIG to manage the state park. AIG hired private firefighters to perform the firefighting service in the state part, at the behest of AIG, at the behest of the State of California. Those private firefighters apparently didn’t do a very good job, and so after being paid by the state (ultimately) to do a state job on state land it is considered a failure of privatization.

A real example of privatization would not have the state involved. These private fire fighters would be hired, not by California (via AIG) but by the private owner of the private land.

The two do not compare. No matter how many intermediary agencies there are between the top and the bottom, the top level agency, the one that initiates the sub-contracting, sets the rules for the entire chain downwards.

This is evident in the way companies that get most of their business from government contracting are run. Those companies have an internal structure and practice that is in many ways as bureaucratic as the government. They may be a little less bureaucratic since they do not have to follow the full range of regulations, but adherence to many government policies are written into contracts to ensure that sub-contracting doesn’t interfere with social planning objectives.

In the private sector sub-contracting also means that the goals of the top level company are the goals that determine all contracts down the line. The difference is that the goals in the private sector are all the same, best product for the lowest price. Government contracts aren’t written to make money for the government but to adhere to some policy driven standard, thus ensuring that there will be conflicting goals in government contracting.

When a contractor fails to deliver what should be the desired result, but stays entirely within the contract, it is not the fault of a private system. It is the fault of a public system that, in this case, happened to use a sub-contractor. The fault is still in the public sector.

Sub-contracting, contracting out to private companies government functions, is not an example of the free market at work. It's more correctly referred to as corporatism.


Dave said...

Those companies have an internal structure and practice that is in many ways as bureaucratic as the government.


Yes, most definitely. In some cases, in order to retain the contracts from year to year, these companies are even more so. I had the great misfortune of being caught up in that system for many years. Tiring to say the least.

Dave said...

As far as corporatism is concerned, at one point I believe there were 300 hundred or so "contractors" in the middle-east war zones doing everything, to include killing.

I know now that what we are looking at is downright Fascism. Our fiat currency is set to be replaced by a world currency, your thoughts?

Ayn R. Key said...

The biggest problem our government has had has been selling the next step. Usually a crisis is involved in order to make it happen. People in this country still think of themselves as free, even though by and large they are not. Each new step must be combined with propaganda saying to us that we are still free in order to convince a large enough section of the public of that. Ayn Rand referred to this as the difference between the mind of America and the soul of America, and said our soul still believe in liberty.

A single world currency would be a very hard sell on that, especially since Americans are so very used to having the single dominant currency in the world. From one perspective we are looking at the end of a six decade long currency bubble. Even if a world currency is introduced it is unlikely that the American Public would switch to it voluntarily.

So to a certain extent we are safe. But only to a certain extent.

Dave said...

Yes, things would need to be pretty bad for a voluntary switch.