Competition Improves Government Performance, New Studies Show

Published March 1, 2005

Two important new studies show competition improves the efficiency of government departments. One study considered the effects of competition on federal employees, while the other investigated how a limited introduction of competition affected the performance of all schools in Philadelphia.

In addition, Harvard University recently published a report by an FCC attorney on how government policy has helped and hindered communications competition and innovation.

Study Addresses Employees, Savings

“Competitive Sourcing: What Happens to Federal Employees?” from the IBM Center for the Business of Government, answers these questions: How does introduction of competition affect government employees? Does competition really save money?

The study’s authors, Jacques Gansler and William Lucyshyn, professors of public policy at the University of Maryland, examined data on competitive bidding of projects affecting more than 65,000 defense employees since 1995. They discovered “only 5 percent [of defense positions] were reduced through the involuntary separation of federal employees. Instead, positions were more likely to be reduced in the winning bids through the transfer of employees to other government jobs or through early retirement.”

They also found competition reduced costs by an average of 44 percent, “with either improved performance or no decrease.” Most savings came from improved efficiency, they note, with the winners of the project bidding–sometimes government employees, sometimes private firms–using 39 percent fewer employees to do the work.

Competition Benefits Schools

The November 1, 2004 issue of the U.S. Department of Education’s Education Innovator newsletter highlighted “Privatization Produces Gains in Philadelphia,” an article by Reason Foundation’s Lisa Snell, which examines how privatization of the management of some of Philadelphia’s most troubled schools has affected the city’s other public schools.

Writing in the October 2004 issue of School Reform News, sister publication to Budget & Tax News, Snell explained how competition from privatizing some of Philadelphia’s schools has driven all of them to improve performance. Since privatization, all Philadelphia schools have improved their test scores twice as rapidly as schools in the rest of the state.

Of Philadelphia’s 265 schools, 64 of the lowest-performing were targeted for special intervention when the state took over the school system in 2002. Of those, 45 were turned over to private education managers to run.

In the past two years, gains in student achievement occurred in contracted “partner” schools as well as in traditional public schools, providing the first substantial evidence that the city’s public-private school management experiment is working.

Competition Outperforms Regulation

“Does Government Help or Hurt the Spread of New Communications Technology?” a Harvard University report by John Berresford of the Federal Communications Commission, examines four case histories: the achievement of universal telephone service, creation of radio broadcasting, creation of television broadcasting, and taming of the Bell System. From these histories, the author draws six lessons about which actions by government produced, and which did not produce, good results for American consumers.

Among Berresford’s conclusions:

  • The new technologies of the past 50 years, not regulation, have given more power to the people and more voice to the silent. Government should welcome disruptive, unpredictable, even chaotic new technologies.
  • Government, when confronted with a monopoly (or oligopoly), should avoid regulating it in hopes of making it a “good monopoly.” Government’s scarce resources are best devoted to stimulating competition and abundance, not to regulating a “good monopoly” and the scarcity that usually creates.

Adrian Moore ([email protected]) is vice president of the Reason Foundation.

For more information …

“Competitive Sourcing: What Happens to Federal Employees?” is available online at

“Privatization Produces Gains in Philadelphia” is available at

“Does Government Help or Hurt the Spread of New Communications Technology?” is available online at