How Privatization is a Lie

Much has been made of the importance of privatizing government functions, particularly in the Department of Defense. The private sector, the claim goes, is always more efficient than the public sector.

That turns out to be seriously untrue.

In the first major study WC has seen, the Project on Government Oversight (“POGO”) analyzed the total compensation paid to federal and private sector employees, and annual billing rates for contractor employees across 35 occupational classifications covering over 550 service activities. POGO estimated the government pays billions more annually in taxpayer dollars to hire contractors than it would to hire federal employees to perform comparable services. Specifically, POGO’s study showed that the federal government approves service contract billing rates—deemed fair and reasonable—that pay contractors 1.8 times more than the government pays federal employees in total compensation, and more than 2 times the total compensation paid in the private sector for comparable services.

Some other important findings:

• Federal government employees were less expensive than contractors in 33 of the 35 occupational classifications POGO reviewed.
• In one instance, contractor billing rates were nearly 5 times more than the full compensation paid to federal employees performing comparable services.
• Private sector compensation was lower than contractor billing rates in all 35 occupational classifications we reviewed.
• The federal government has failed to determine how much money it saves or wastes by outsourcing, insourcing, or retaining services, and has no system for doing so.

What the study showed is that comparing federal to private sector compensation to the individuals delivering the services reveals nothing about what it actually costs the government to outsource those services. The only analysis that will shed light on the true costs of government is that of contractor billing rates and the full cost of employing federal employees to perform comparable work.

Beyond that, it’s clear the federal government is not doing a good job of obtaining genuine market prices, and therefore the savings often promised in connection with outsourcing services are not being realized. The argument for outsourcing services is that, by outsourcing services on which the government holds a monopoly, free market competition will result in efficiencies and save taxpayer dollars. But our study showed that using contractors to perform services may actually increase rather than decrease costs to the taxpayers. Far too many contracts are awarded without real competition, creating no incentive for economies.

The bottom line is that taxpayers have been sold another bill of goods. We’re not getting private sector rates; we’re getting special government rates. It’s classic bait and switch. The United States has created a shadow government of private contractors who aren’t held to account, on the premise that it is saving the taxpayers money. The premise is false. It turns out it is 1.8 to 2.0 times more expensive, 3 times as expensive as the private sector.

Every American should read the POGO study, or at least the Executive Summary. Want to reduce government spending? Stop privatization. Of course, since this study contradicts everything the Teabaggers believe about government, they’ll ignore it. But it doesn’t make it any less real.