June 23, 2006

A hidden downside to privatization

The Becker-Posner blog is discussing a deal to sell the Indiana Toll Road for $3.8 billion. An overlooked cost to privatization is that privatization saps the quality of government employees if the more ambitious can quit and go into identical jobs in the profit-making sector.

We're paying the price in Iraq where our best $30,000 per year sergeants are quitting the Army and returning to Iraq as $150,000 per year Blackwater mercenaries. The taxpayer is out $120,000 per year, and the Army, which does the real fighting, loses its best men. Not surprisingly, it also undermines morale in the Army. We never did this before, and there was a good reason we didn't: it's nuts.

As more things get privatized, and the differential in pay between government jobs and privatized jobs balloons, then we run ever more into the problem of the clueless (the government overseers) trying to keep an eye on the clever (the privatized operators). The raping of California by Enron and friends after the foolish deregulation of energy in 1996 is a classic example.

If you look at the high quality of government work from, say, the Panama Canal through Apollo 11, compared to the poor effectiveness of government undertakings in recent years, you'll see evidence that privatization is undermining government effectiveness.

My published articles are archived at iSteve.com -- Steve Sailer

No comments: