Revisiting the 1980s Privatization Myths

by D. Cupples | Yesterday, someone with an invalid email address (and maybe a pseudonym) left a comment at one of my posts that seemed fueled by the type of anger that invariably seized Elmer Fudd when eluded by the Waskally Wabbit.  My post was about Florida congressional candidate Alan Grayson, who has an impressive record of fighting government contractor fraud -- an issue that, according to my mother, I focus on far too much.

I’m glad that Mr. Fudd dropped in, because his comments reminded me that some myths about privatization still need debunking.  In part, he wrote:

"The only reason government contractors exist is to provide recurring services to the government, for as anyone with any knowledge of government service, [SIC] contractors are MUCH, MUCH cheaper than direct government/military labor.

"It's why every army post outsources it's fuel, dining halls, etc. While you may have basic math skills, you might want to refresh your basic economic skills. The entire reason for government contracting is that it is less money to the government...hence the term 'free market....'"

After reading Mr. Fudd's comments, which included the suggestion that I should start doing actual research on privatization and contractor fraud, I hunted for links and spent time drafting a thoughtful, pleasant response. In an abundance of politeness, I even overlooked Mr. Fudd's bizarre notion about the origins of the term  "free market."

The email bounced back with a message indicating that the email address doesn't exist.  What follows is some of what I'd tried to share with Mr. Fudd.

Since the '80s, privatization supporters have claimed that contractors cost less than government employees.  Why does anyone still blindly assume that corporate employees are more efficient?

Enron employees, for example, thought a corporate art collection would be a fine use of 20-million shareholder dollars.  Former Tyco CEO Dennis Kozlowski spent a million shareholder dollars on his wife's weekend birthday bash (he relocated to prison after looting Tyco of $600 million).

Examples such as those, which are hardly uncommon, should cast doubt on the notion that corporate employees are, by nature, more careful than government employees with other people's money. 

Another issue: contractor profits -- even reasonable ones -- add to the taxpayers' costs of privatizing government services.  Consider Booz Allen Hamilton, a major contractor in intelligence and defense.  Booz Allen charged us taxpayers $42 - $383 per hour for its employees to do the same work that government employees would do for about half that pay range. 

Blackwater CEO Erik Prince told a congressional committee that about 10% of its roughly $1 billion in State Department security contracts was profit. (See hearing video.)  That's $100 million.  Blackwater paid its security guards about $600 a day and billed the government about $1,200.  Basically, Blackwater acted as an employment agency.  If the State Dept. directly hired those same security guards for $600 a day, the taxpayers' costs would drop significantly.

Incidentally, Blackwater didn't start out big.  In 2000, Blackwater had less than $1 million in federal contracts. Now, it has about $1 billion – and the CEO said that 90% of its business came from federal contracts. (See hearing video) 

Translation: tax dollars paid for much of Blackwater's amazing growth, including inventory (e.g., helicopters, weapons, etc) and possibly mark-ups on those items. That equipment doesn’t belong to us taxpayers, so we can't ever sell it as surplus to recoup costs.

The upshot: we keep paying $1,200 a day for Blackwater guards to use equipment we paid for on our behalf.  Even worse, we taxpayers paid for most Blackwaters guards to get military or law enforcement training before they signed on with Blackwater (and started working for us taxpayers again).

Does any of that sound particularly efficient?

It's ironic that Mr. Fudd mentioned the military's outsourcing of dining halls as an example of how we taxpayers save money through privatization.  According to a former insider, Halliburton/KBR -- among other things -- repeatedly over-billed us taxpayers for troops' meals. (Vanity Fair)

I could go on and on with examples of contractor waste, fraud and abuse, but I already have.  If you're interested, see the blog posts linked below.

BN-Politics Posts:

* Contractor Fraud: Driving up Healthcare Costs

 

* Govt. Contractors: Driving up War's Costs?

* Whatever happened to the 190,000 Missing Weapons?

* $1 Billion (More) in Military Hardware Missing in Iraq

* "Billions over Baghdad": Poor Accounting Enabled Waste & Fraud

* Blackwater Took Iraqi Airplanes, CEO Misled Congress?

* DoD Rewarding Bad Contractor Performance?

* Taxpayers Losing Money to Engorged Contractors

* Justice Dept. Official Turned Blind Eye to Contractor Fraud?

* Inspector General Blocked Investigations re: Waste and Fraud?

* Embassy in Iraq: Waste, Bad Planning & Contractor Fraud?

* Private Insurers Milking Medicare

* Drug Companies Scammed Taxpayers & Cancer Patients

 

Comments

[Darla]

I'm glad you are focusing on it--somebody needs to.

[D. Cupples]

Thanks. I just hope that more people focus on this issue and connect the dots. We taxpayers are losing a lot of money (and services) -- all based on 20-year-old myths.

[Mason]

Good coverage of the bottomless pit of government waste. Federal, Sate, Local, they all need a good scrubbin'(MILITARY COUP).
Whenever you hear anyone say the government couldn't be as effient, recall this - It is MORE EFFICIENT IF ONLY 1 PERSON GETS WEALTHY FROM THE PROJECT - NOT IF WE SHARE IT WITH OUR FELLOW AMERICANS. It all makes sense then.
We should NATIONALIZE KBR, Blackwater and the like and give ALL ownership to the SSA and let our retirees and veterans get a piece of the action as the war profits mount on the bodies of their dead sons and daughters. As it is now, profits are going to relocate wealthy Americans to overseas places like Dubai ( Isn't that where HAL's CEO is going?) where money is welcome and humanity is not.
And 1 final jibe - why use government troops to fight the war if they are not efficient? Why not hire an entirely efficient private army? OOHH I guess private investors don't want to pay for everything heh? best lay it all off on taxpayers, quietly. Thats profit baby. Then cry force majeur when the folks around you get angry. - I think all amercians should go show the taxman their empty pockets and tell Uncle Scam to ask Richie Rich for the money he stole from us, and leave us alone instead.

[D. Cupples]

Mason,

Well said! Naturally, I agree with you.