Privatizing Not the Entire Answer, Tough Choices Are

Published June 21, 2011

Republican presidential candidate Tim Pawlenty has gotten a lot of flack from liberals and conservatives alike for his proposal that the nation cut government through what he calls the “Google test.” In a Chicago speech earlier this month, the former Minnesota governor put it this way: “If you can find a good or service on the Internet, then the federal government probably doesn’t need to be doing it.”

Contrary to the moans from the liberal blogosphere and more than a few editorial pages, the idea is actually a good, well-proven one. But by itself it’s not likely to result in big taxpayer savings.

What Pawlenty calls the “Google test” began as a “Yellow Pages test” proposed in the early 1990s by then-Indianapolis mayor Stephen Goldsmith. Soon after he came into office, Goldsmith asked government to compete with the private sector in places where multiple private-sector firms were listed in the Yellow Pages.

Private firms were allowed to compete with the government for everything from laying concrete to picking up litter. Goldsmith called this “marketizing” services. Many services improved, although a few, such as sewage treatment, ran into trouble. Overall, the operation was a success, saving the city more than $400 million during Goldsmith’s term in office.

Given its success in cities and states, there’s no doubt the federal government would do well to take a dose of “marketization/Yellow Pages test/Google test” medicine. If forced to compete or face elimination, many government agencies would have to get their acts in order or step aside for more-efficient private contractors.

The federal government already does a lot of contracting out, however, which will reduce potential savings from the plan. The government has made very heavy use of contractors to do everything from operating the space shuttle to running the Transportation Security Administration’s back office. Even with the enormous growth of government under Presidents George W. Bush and Barack Obama, the government directly employs fewer people than it did in the late 1960s. Although there are plenty of overweight behemoths in the federal bureaucracy, some entities such as the Social Security Administration manage big programs with very small direct staff and overhead components.

In addition, several of the federal government’s biggest spending items — entitlements, defense and debt interest — can’t really save much money unless they are fundamentally reformed. Social Security, Medicare and Medicaid (the latter two already administered and delivered by private-sector entities) can be made less expensive through restructuring, but simply changing the way they are delivered won’t have a big impact on the budget.

Similarly, private contractors already help with some military tasks, but obviously they shouldn’t make national security decisions, and any big savings will have to come from policy changes. Ultimately, the areas where one could save significant money through the “Google test” are in domestic discretionary spending—less than 20 percent of the federal budget.

Finally, privatizing some services can actually increase government spending. The United Kingdom has improved the quality of rail service and cut per-passenger subsidies by handing off to the private sector the operation of trains. But because the trains are better, more people ride them and public spending on U.K. trains has increased. Similarly, the coordinated nature of the Department of Veterans Affairs Hospital system allows it to deliver medical care less expensively than the private sector. Unless it is accompanied by an effort to change the way private medical care operates or a significant cutback in veterans’ benefits, turning the VA system over to the private sector could increase spending.

In short, Tim Pawlenty’s “Google test” is a good, proven idea. But by itself, it’s not likely to reduce the size and scope of government. That will require some much tougher choices.

Eli Lehrer is vice president for Washington, D.C., operations of The Heartland Institute and national director of its Center on Finance, Insurance, and Real Estate. Email: [email protected]