How the Government Blows Away the "Private Sector" in Delivering Services


Minneapolis will soon vote to shift nearly 180 privately owned bus shelters to public ownership following numerous complaints about the lack of maintenance and upkeep. When it does it will join the burgeoning ranks of cities that have discovered when it comes to public services, government knows best.

In the post-Ronald Reagan era, Americans take as indisputable that the private sector is more nimble and more innovative and the profit motive commands efficiency. But a mountain of evidence points in the other direction. The government is highly competitive. Indeed, privatized services often come at a higher price and lower quality.

The examples are legion. Medicare boasts a tiny overhead cost compared to that of private insurance companies. Federal unsubsidized student loans are cheaper and more flexible than private bank student loans. Private contractors cost Washington almost twice as much as federal employees for the same tasks. 

Evidence of government excellence is equally abundant at the state and local level. In a growing number of jurisdictions governments are reassessing the value of privatizing services.

In the Public Interest reports that in 2010 the Hernando County, Fla., sheriff’s office took over management of its jail from the Corrections Corporation of America after the CCA failed to adequately maintain the facility and engaged in practices that compromised safety and increased the chance of escapes and incidents of violence. The sheriff increased annual salaries of corrections officers by more than $7,000 to attract the highly qualified, significantly improved the quality of the facility and saved $1 million the first year of public operation to boot.

In 2011, Tulsa mayor Dewey Bartlett considered outsourcing many city services, including the maintenance of fleets, facilities and streets but had the good sense to open the bidding process to public workers. The public proposal was chosen over local and national firms for its significant taxpayer savings.

In 2012, San Diego sought to sell its landfill to a private corporation. Several companies submitted bids. Once again the city had the foresight to allow public service workers to submit a bid. The review board concluded the city would save money and get better service by keeping the operation of the landfill in-house.

In 2012, Illinois awarded the Maximus one of country’s largest private social service providers a $77 million contract to review Medicaid eligibility. A 2013 independent investigation found errors in almost 50 percent of the cases. Illinois terminated the $77 million contract last December. One analysis found state employees would save Illinois more than $18 million annually while replacing unqualified call center hires with trained caseworkers.

Every year, the Minnesota Department of Transportation’s eight districts solicit bids from private contractors as well as MnDOT’s own striping division to paint lane stripes on every highway in Minnesota. Without fail, MnDOT’s public striping crew beats the private competitors by a large margin.

Outsourcing not only tends to cost more and provide lower quality services; it also has unquantifiable but very real other costs. After Minneapolis outsourced its information management system to Unisys about 10 years ago it found it had lost much needed in-house expertise, including the ability to properly oversee the Unisys contract.

Last fall the Jonesboro Sun asked the CEO of Tiger Correctional Services, a company that contracts for jail commissary services with the Craighead County Arkansas Sheriff’s Department for financial information that was public when the services were operated by that department. Tiger’s attorneys asserted that because it is a private company none of the company’s records were subject to public open records laws.

With regard to private military contractors, Major Kevin P. Stiens and Lt. Col. (Ret.) Susan L. Turley observed that, “Not only did the cost savings fail to materialize, outsourcing caused other tangible losses. The government lost personnel experience and continuity, along with operational control, by moving to contractors.” Air Force Colonel Steven Zamperelli added, “Private employees have distinctly different motivations, responsibilities and loyalties than those in the public military.”

One city shifting 180 bus shelters back into public hands is a minor development with a one-day news life. But it reflects a much larger story—that increasingly, governments are reevaluating the efficacy of privatizing public services.

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