The Privatization Decision: Public Ends, Private Means. - book reviews

Washington Monthly, Nov, 1989 by Paul Glastris

The Privatization Decision: Public Ends, Private Means The Privatization Decision: Public Ends, Private Means. John Donahue. Basic Books, $22.95. For years the literature on privatization has been so dull or biased that it's been hard to make up one's mind about it. Conservatives, business leaders, and other proponents, who never really have believed in government or the idea that bureaucracies can be reformed, can't be trusted. But neither can privatization's main opponents--liberals and public employee unions who feel there's nothing wrong with the civil service that a stiff pay raise won't solve. Donahue takes on the subject with the fair-mindedness extolled at the Kennedy School where he teaches, and where one might fear dreary quantification, he offers clear and compelling prose.

Most of the world understands privatization as meaning divesting government-owned assets like steel mills and airlines. In the U.S., where government has never owned such ventures, privatization has come to refer largely to "contracting out": paying tax dollars to private companies, rather than government bureaucracies, to accomplish public tasks. Donahue makes clear that the private sector does have Rotary Club advandtages over the public sector: focused accountability, lower labor costs, fewer work rules, more incentives to watch costs and exploit innovations. The problem is finding public tasks for private companies where those qualities can flourish, and yet where others common to government contractors, like overbilling, shoddy workmanship, price collusion, influence peddling, bribery, etc., do not.

Privatization works and probably ought to be expanded, says Donahue, for public tasks that are relatively simple and where competitors are plentiful: garbage collection, firefighting, and bus and janitorial services. Privatizing usually makes matters worse, however, when the public mandate for an endeavor is complicated, vague, or everchanging; where hoped-for results cannot be specified in advance without reams of contractual paper; and where high entry and exit costs mean few companies can compete for government business. The Pentagon fits this bill perfectly, says Donahue; he would transfer responsibility for designing and developing weapon systems from contractors to public servants. He also gives a detailed and nuanced assessment of the private prisons issue that will confirm the pit-in-the-stomach fear a lot of people have about turning incarceration over to corporations.

Political pressures, however, appear to be at variance with Donahue's recommendations. Public employee unions fight hardest, he says, for retaining those areas where private competition could give taxpayers the most value, while corporations seek government contracts that offer monopoly profits and lax supervision.

I wish Donahue had elaborated on his finding that in privatization arrangements where companies and government agencies compete, government agencies lower their costs of doing business. He also relies too much on national security analysts like J. Ronald Fox and William Perry, who attribute the complexity of Pentagon contracts to the demands of high technology, never questioning the need for all of that brittle gear. Donahue's Kennedy School faith in respectable experts leaves him apparently unaware of bureaucratic forces within the Pentagon--military careers tied to the fate of tiny and expendable components--that needlessly complicate contracts. Rather than endlessly specifying inputs, military reformers have long called for simple contracts that state how weapons should perform.

Making performance-based contracting work requires drastically overhauling the Pentagon. But so too does Donahue's idea of relying more on civil servants. That, perhaps, is the biggest point Donahue fails to make. Whether you're in favor of more privatization or less, there's simply no getting around the need to reform government bureaucracies.