Privatizing the Federal Gov't

[New York Times]
November 19, 2002
Victors and Spoils
By PAUL KRUGMAN

Rule No. 1: Always have a cover story. The ostensible purpose of the Bush
administration's plan to open up 850,000 federal jobs to private
competition is to promote efficiency. Competitive vigor, we're told, will
end bureaucratic sloth; costs will go down, and everyone - except for a
handful of overpaid union members - will be better off.

And who knows? Here and there the reform may actually save a few dollars.
But I doubt that there's a single politician or journalist in Washington
who believes that privatizing much of the federal government - a step that
the administration says it can take without any new legislation - is
really motivated by a desire to reduce costs.

After all, there's a lot of experience with privatization by governments
at all levels - state, federal, and local; that record doesn't support
extravagant claims about improved efficiency. Sometimes there are
significant cost reductions, but all too often the promised savings turn
out to be a mirage. In particular, it's common for private contractors to
bid low to get the business, then push their prices up once the government
work force has been disbanded. Projections of a 20 or 30 percent cost
saving across the board are silly - and one suspects that the officials
making those projections know that.

So what's this about?

First, it's about providing political cover. In the face of budget
deficits as far as the eye can see, the administration - determined to
expand, not reconsider the program of tax cuts it initially justified with
projections of huge surpluses - must make a show of cutting spending. Yet
what can it cut? The great bulk of public spending is either for essential
services like defense and the justice system, or for middle-class
entitlements like Social Security and Medicare that the administration
doesn't dare attack openly.

Privatizing federal jobs is a perfect answer to this dilemma. It's not a
real answer - the pay of those threatened employees is only about 2
percent of the federal budget, so efficiency gains from privatization,
even if they happen, will make almost no dent in overall spending. For a
few years, however, talk of privatization will give the impression that
the administration is doing something about the deficit.

But distracting the public from the reality of deficits is, we can be
sure, just an incidental payoff. So, too, is the fact that privatization
is a way to break one of the last remaining strongholds of union
power. Karl Rove is after much bigger game.

A few months ago Mr. Rove compared his boss to Andrew Jackson. As some of
us noted at the time, one of Jackson's key legacies was the "spoils
system," under which federal jobs were reserved for political
supporters. The federal civil service, with its careful protection of
workers from political pressure, was created specifically to bring the
spoils system to an end; but now the administration has found a way around
those constraints.

We don't have to speculate about what will follow, because Jeb Bush has
already blazed the trail. Florida's governor has been an aggressive
privatizer, and as The Miami Herald put it after a careful study of state
records, "his bold experiment has been a success - at least for him and
the Republican Party, records show. The policy has spawned a network of
contractors who have given him, other Republican politicians and the
Florida G.O.P. millions of dollars in campaign donations."

What's interesting about this network of contractors isn't just the way
that big contributions are linked to big contracts; it's the end of the
traditional practice in which businesses hedge their bets by giving to
both parties. The big winners in Mr. Bush's Florida are companies that
give little or nothing to Democrats. Strange, isn't it? It's as if firms
seeking business with the state of Florida are subject to a loyalty test.

So am I saying that we are going back to the days of Boss Tweed and Mark
Hanna? Gosh, no - those guys were pikers. One-party control of today's
government offers opportunities to reward friends and punish enemies that
the old machine politicians never dreamed of.

How far can the new spoils system be pushed? To what extent will it be
used to lock in a permanent political advantage for the ruling party? Stay
tuned; I'm sure we'll soon find out.