Coyote at the Privatization Blog

Because I do not have enough to do, I have joined the blogging team at the Privatization blog.  I am excited, because Dru Stevenson is assembling a group who have very different opinions on the topic and it should lead to a good discussion.  My introductory post is here.

  • Bill Drissel

    Warren,
    I have experience at two national test ranges. No one questions that the government should decide priorities, safety and environmental issues etc. but the jobs required from month to month are simply too demanding for the civil service worker and management culture. In particular, the civil service pay structure couldn't hire an electrician with special experience for a couple of months with one month notice.

    For example, my last trip to the range at Fort Huachuca, our project demanded quality electric power out in the desert. (Not for the ruggedized military gear but the "office environment" PCs, printers etc.) We needed power from first light to dark in the summer seven days a week. The GIs assigned and their leadership could get generators out where we needed them but the maintenance was atrocious. Even with three generators, we would frequently have to wait til noon for one that worked. A particularly dedicated civil servant found a contractor with two employees who kept our generators in repair and towed them out to the desert before we arrived, had them running etc. The contractor and the other employee worked in the shop making sure we had power the next day.

    Best of both worlds - the national interest was preserved by govt oversight. Private people brought the expertise, enthusiasm and "no cure, no pay" incentive. You could zip down there and maybe have a look at the army's electronic proving ground.

    The other range where I worked was the Atlantic Missile Range (Cape Canaveral). Again, the govt does policy and oversight. Everything that HAD TO BE DONE was done by contractors when I was there during project Mercury.

    I've suggested we run our schools that way. Two or more contracting firms in each school ... oversight, maintenance, records by government. Teachers with enthusiasm, paid according to their market value. Kids and parents choose between businesses competing to provide what the parents want.

    Anyhow go down to Sierra Vista and have a look. Worked very well for our project.

    Regards,
    Bill Drissel
    Grand Prairie, TX

  • Don

    Warren,

    You are a SERIOUS glutton for punishment!

    Congrats on yet another writing gig.

  • me

    Ah, privatization. I won't comment on the new blog (requires all sorts of logins), but let me say that I've seen it go spectacularly right and spectacularly wrong.

    Privatization works if the privatized function is small enough to be manageable and measurable. It pretty much fails if that isn't the case.

    There might be a larger principle at work here - I've been thinking more and more recently that the problems with public administration are less about inherent inefficiency but more about large organizationss inevitably being wasteful.

    The classic "too hard to measure" fail would be for instance the privatization of power generation in Germany - prices first sank than rapidly accelerated (not a problem, that has other, political reasons)... but ten years later, it turns out the power networking infrastructure that the providers have been charging steeply increasing rents for has not been maintained. Oops. Guess who has to step in to upgrade/repair all of the damage? Taxpayers. Welcome to another kind of "too big too fail".

    The classic "too large to manage" fail is what happens if a monster of an organization is taken private. German railroads are my favorite example - new private CEO installed (quite highly paid, too). Nothing changes for 10 years, exactly the same problems with the private org that were present in the state managed enterprise.

  • markm

    me: Was that "privatized" German railroad still a monopoly? That's the root cause of many governmental failures - dissatisfied "customers" cannot go elsewhere, so why bother with customer service?

  • me

    Pretty much - sort of a worst-case scenario, where a private enterprise ends up with a de-facto monopoly. Rent-seeking, anyone?

    Technically, privatization itself is probably not so much the issue as creating a competitive market without arbitrarily high barriers of entry (and let the state-managed version of an enterprise fail disgracefully ;))

  • me

    Another follow up - there are some highly relevant points about how not to privatize here: http://www.ritholtz.com/blog/2012/05/the-fraud-recipe-for-ceos-why-banks-hate-free-markets-and-love-crony-capitalism-and-the-dysmal-legacy-of-mainstream-economists/.

    Excerpt:

    On the danger Control Frauds pose to society: When many of these frauds occur in the same area, they hyperinflate financial bubbles, which is what causes financial crises and mass unemployment. It makes the CEOs wealthy, produces Balzac scandals, and destroys democracy.

    On how perverse incentives encourage fraud: Perverse incentives produce criminogenic environments that encourage fraud. When people are able to steal a lot of money, with no threat of imprisonment, nor having to live in disgrace, an environment conducive to fraud is established. Establishing such an environment in practice requires the 3 D’s: Deregultation, Desupervision, and de facto Decriminalization. Deregulation: you get rid of the rules. Desupervision: any rules that remain, you do not enforce. Decriminalisation: even if you sometimes sue the perpetrators and get a fine, you do not put them in prison.