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Recently, the president released a proposal that would require federal agencies to rely on the private sector rather than the bureaucracy for many of the routine functions of government. All told, up 850,000 federal jobs—roughly half the federal workforce—could be shifted to the private sector. While the administration hails the proposal as an efficiency measure, unions and Democrats have decried the measure as "union busting" and an unnecessary attempt to downsize government. Yet, coupled with retirement trends in the federal workforce, the proposal offers an opportunity to streamline government while creating more manageable federal agencies.
The need for government reform is not new, nor surprising. Currently, the federal government has 1.8 million civilian employees, managing a federal budget over $2 trillion. More than half of this is mandatory spending, which is spent each year with little debate or reform. In such a system, accountability is difficult to establish, and incentive-based performance is hard to promote within the civil service system. Virtually every administration struggles with reforms to improve the management of federal agencies. Before the Bush proposal, for example, “re-inventing government” was the watchword for the Clinton-Gore administration. Unfortunately the insular nature of the civil service and the incentives within a bureaucracy make it difficult to enhance the efficiency of government. Introducing a degree of private sector competition may be the most promising reform available.
Unlike the private sector, there are no profits or losses in a government agency. At the end of the day, there is not an owner or shareholders who can say they made or lost money. Nor are there investors who can threaten to put their money elsewhere should performance be lagging. In other words, the incentives and competitive forces that drive private markets toward efficiency are absent within a bureaucracy. Compare the customer satisfaction of a trip to Burger King with a trip to the Department of Motor Vehicles.
Even worse, what incentives that do exist tend to promote bigger government, not more efficient government. When profits do not drive decision makers, other variables become more important. The customer is not the consumer or taxpayer; rather, bureaucrats serve those who control the purse strings. Power, prestige, and the size of the budget become important in the decision-making process, and questions of resource allocation may be based more on these factors rather than the "public interest." As Professor Gordon Tullock and other public choice scholars have noted, bureaucrats are like all individuals and respond to the incentive structure they face in ways that improve their well-being. In the public sector, there is little to guarantee that this means maximizing the public interest.
While the incentive structure is probably the best predictor of bureaucratic outcomes, this is not to say that there are not other ways to improvement in the federal government beyond addressing questions of incentives. In fact, civil service protections tend to make streamlining difficult. As Chris Edwards and Tad DeHaven of the Cato Institute note, "involuntary separations" (layoffs plus firings) in the federal government are only a quarter of what they are in the private sector. It would be difficult to make the case that the lower rates within government are due to more efficient employees. Federal agencies have been plagued with costly management problems, from mismanaged billion dollar trust funds to credit card abuse by agency employees.
Understandably, unions paint the threat of competition as part of the Bush administration’s campaign against organized labor. Public sector unions are the fastest growing unions today, and putting up federal jobs for bid could take a toll in terms of new recruitment. Fortunately, however, President Bush’s proposal comes at a time when federal agencies are facing a wave of retirement. The Government Accounting Office estimatesroughly a third of the federal workforce will be eligible for retirement by 2006. These retirements make the transition toward competitively provided services more feasible.
Ultimately, the administration’s plan should promote a more efficient, streamlined government. If the government simply increases the number of contractors while reducing the number of employees, taxpayers may be no better off. Services may be provided more efficiently, but government will continue to grow. As part of the homeland security reorganization and the changing demographics of the federal workforce, the Bush administration has a rare opportunity to eliminate redundant and wasteful government operations. Attrition alone would reduce the size of many bloated agencies. The annual budgeting process becomes even more important, and the White House should work closely with agencies to identify programs and bureaus that are wasteful, redundant, or unnecessary. But reform will require oversight and leadership; federal agencies and unions will be fighting to protect each job to preserve various "empires," regardless of their relevance or efficiency. Remember the tea tasters in the Department of Commerce?