Submitted on September 22, 2011

Has the battle over public sector compensation turned a decisive corner? Have much-maligned government workers won an evidence-based victory?

Reasonable people might think so, thanks in part to a study by the Project on Government Oversight (POGO), a nonpartisan group that keeps close tabs on government operations. According to the findings of the POGO report – findings that they call "shocking" – the "federal government approves service contract billing rates … that pay contractors 1.83 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."

More specifically, federal government employees cost less than private contractors in 33 of the 35 occupational classifications reviewed – and non-federal private sector worker compensation was lower than contractor billing rates in all of the reviewed classifications. In one case, contractor bill rates were nearly "5 times more" than the full compensation rates paid to comparable federal workers.

Who’s ripping off whom here? The whole idea of "contracting out" is supposed to be to get more bang for the taxpayers’ buck. Instead, the study found that contractors cost more than federal workers AND more than other private sector workers doing comparable work. (This is a complex subject and I suggest that readers review the study’s methodology section).

So, why does privatization still loom large for "reform" advocates in and out of government? One reason, POGO found, is that the federal government has no system for assessing the impact of privatization. Accordingly, managers haven’t a clue as to how much money is saved or wasted through privatization.

One might be forgiven for suspecting that federal managers sometimes privatize because of the unrelenting political pressure to do so. The reasons for this pressure range from the zeal of ideological anti-government types to the ancient, bi-partisan urge to reward friends, donors, and constituents with a federal contract or two or ten.

The headline pressure to privatize, however, comes mostly from the right. The ideological imperative to slash government usually comes wrapped in arguments about the superiority of private sector cost and performance. As the evidence comes in, however, the privatization advocates are increasingly left only with ideology, because the substantive case for privatizing – in terms of cost, efficiency, and quality – is at best mixed and often bogus.

Take compensation for example. At the state and local level, Jeffrey Keefe of Rutgers has pretty much demolished the argument that government workers are overpaid. My colleague, Matt Di Carlo, has addressed this as well.

`Of course, privatization advocates have studies, too. In 2010, the Heritage Foundation conducted a sectoral comparison and concluded that federal government workers bring home 22 percent more in hourly wages than their private sector counterparts. The study concluded that if federal employee compensation were reduced to the level of their private sector counterparts, it would save $47 billion in 2011 alone

But POGO didn’t just compare sectors; it compared what the feds actually paid out to private contractors to what they would have paid to have the work done in-house. It turns out that the reality of privatization is far different than the model.

The Heritage Foundation author, in a New York Times piece on the POGO study, criticized the report, arguing that it didn’t account for the long term cost of permanent federal hires, compared to short term contractors. The POGO researchers, in response, noted that most private sector contractors, in fact, enjoy multiple year contracts, and the study itself reports that the federal government commonly bids out for contract periods of ten years or more. The POGO researchers also challenged in some detail the methodology of the Heritage study

Employee compensation is just a piece of the privatization agenda, which also argues that the private sector usually can do the job better. Policing, trash collection, transportation services – you name it, the argument is that private sector is cheaper, more efficient, and more innovative. Here, too, it has become clear that, far from being a panacea for our woes, privatization often creates problems and costs more.

What may be emerging from this decades-long challenge to public servants and public services, through varied experiments with privatization, is a slow re-learning of a simple reality: modern civilizations need strong, capable, responsible and accountable government services which offer long-term, stable and efficient service on behalf of the entire community. This is not a utopian vision, but a perspective borne of practical experience, and increasingly ratified by empirical data.

- Randall Garton