Sunday, March 19, 2006

Privatization Isn't Just About Money

Let’s just go ahead and say this and get it out of the way: government doesn’t owe anyone a job.

That’s why most taxpayers aren’t moved when some elected officials attack a change in operations merely on the grounds that it would cut the size of the workforce or lay off public workers. This outcry is especially loud when the proposed change is privatization.

It’s unfortunate that in politics, every one is expected to have a hard and fast opinion on privatizing public services. You must be unalterably for it, or conversely, you must be unilaterally against it.

The problem is that most of us ordinary taxpayers aren’t particularly interested in these political lines in the sand. And many of us aren’t solely interested in making government cheaper, but we are interested in anything that improves government – its efficiency, its services, its responsiveness and its quality.

If the road to that destination includes privatization, then so be it. That said, we favor the kind of process advocated by former Indianapolis Mayor Stephen Goldsmith, who became a legend because of his ability to work with unions while privatizing an array of city services in that city.

In his case, he didn’t just recruit companies to manage public services. Rather, he also encouraged public workers to shed their inferior self-image and to submit their own bids against private contractors. They won some, and they lost some, but most importantly, the process forced a change in the bureaucratic “it’s not my job” attitude.

For example, when Goldsmith decided to sign a contract for new management of the garage mechanics, he invited the mechanics already working for Indianapolis city government to submit a bid of its own. They did, and their proposal called for the thinning of the ranks of management by 75 percent and for profit sharing. They won the contract, and unsurprisingly, their productivity climbed.

While national rhetoric about privatization has cooled from a few years ago, the impact can still be seen everywhere. There is not a single government service somewhere that is not being outsourced to the private sector – from corrections to public works, from firefighting to computer services, and from building and grounds to child support enforcement, from human resources to financial management. One government even allowed employees to restructure their department into an employee-owned company, cutting costs by 30 percent.

Recently, Chicago Mayor Richard Daley, who realized a $1.8 billion windfall on the lease of the Chicago Skyway, announced that he’s now weighing the possibility of leasing another of the city’s assets: Midway Airport.
We look for increased pressures for more outsourcing of public services as Baby Boomer employees retire en masse in the future, and Goldsmith will undoubtedly be the High Priest when the movement comes.

When he served as mayor, Goldsmith emphasized competition as much as he did privatization. In fact, he said once that private monopolies aren’t any more efficient than the public ones, and for that reason, there has to be competition. Challenged to compete for their jobs, city workers invented sleeker systems, increased productivity and found ways to cut costs dramatically.

In many cases, it was the city workers who figured out the best way to deliver high quality and low cost at the same time. As Goldsmith wrote in his book, “The Twenty-First Century City: Resurrecting Urban America:” “The problem is that (public workers) have been trapped in a system that punishes initiative, ignores efficiency and rewards big spenders.

Recently, the new mayor of San Diego, faced with the meltdown of his government in the face of a $1.4 pension liability, has turned to Goldsmith’s philosophy to modernize city services and “fix” a broken city government.

In the end, this is the greatest benefit of privatization. It is an electric shock to entrenched bureaucracies and recalcitrant cultures, and it is this culture that is most often the ultimate enemy to reform, reinvention and innovation.
It’s the challenge presented every day to Memphis City Schools Superintendent Carol Johnson’s reform programs. Like bureaucrats everywhere, school workers assume that they can wait her out. After all, the average tenure of an urban district superintendent is only two and a half years.

Evidence of this is seen in her new disciplinary program. Announced as a major priority by her, the number of disciplinary actions actually went down, because principals and others didn’t want to fill out the paperwork and didn’t agree with her approach to the problem.

In these situations, the jolt that comes from outsourcing a service, like human resources of Memphis City Schools, for example, can not only transform that office, but the effect reverberates through the entire organization and alters the culture that chokes every initiative to death.

That’s why the evaluation of the privatization proposals submitted to Shelby County Government for the operations of the jail and prison were only half complete. Like many governments, the Shelby County Government officials primarily weighed the financial ramifications of the proposals, and made their final decisions based on savings of money.

However, the real value of outsourcing is that it can be a catalyst to innovation and culture change, and in our book, you can’t put a price tag on those two objectives. They’re priceless.

As we’ve said before, we are neither fervent advocates for privatization or unyielding opponents. We just believe that anything that can shake up the cultural lethargy found in government is worth considering.

In the end, maybe the best outsourcing idea of all is the one pursued by Sandy Springs, Georgia, an Atlanta suburb with a population of about 90,000 people - Sandy Springs decided to privatize almost its entire government.

Sandy Springs’ advantage is that it has a blank slate. It only became a city within the last year, and there are no existing unions to fight, no political power bases to convince and no entrenched special interests to oppose it. Instead, it can place itself on the cutting edge of public outsourcing through its $30 million a year contract with CH2M Hill to manage almost all of its city services.

The biggest head start that CH2M Hill has is that with a new government, there are no rigid job descriptions that are the backbone of bureaucratic thinking, no layers of unnecessary middle management and lack of authority that block innovation, and no arbitrary pay systems and work rules that impede productivity.

Here’s the sad truth: if government didn’t exist the way it does today, it would never occur to anyone to invent it. It’s an Industrial Age model trying to succeed in the Information Age.

In the end, its outmoded structure and its lack of emphasis on new thinking, risk-taking and experimentation with new models of governance don’t just inhibit the success of local government. In very real ways, it inhibits the success of our city itself.


Larry said...

Wow, an area that we may actually agree on.

I agree that if we could start from scratch, we wouldn't structure gov't the way we do now.

I also agree that in any privatization, that the workers should be afforded an opportunity to band together and make a bid. If you own a stake in the company, then you will work harder to see it succeed. It becomes less of an internal "us against them" (labor vs management) and more of a external "us vs them" (us against the competition).

And I there are areas where privatization would make sense ... Why is garbage pickup a city job?

Or a semi-privatization ... Lakeland hires the Sheriff's Office to do its law enforcement ... Would Memphis be better off if it paid the Sheriff to be in charge of law enforcement? I don't know but it would be worth looking at.

polar donkey said...
This comment has been removed by a blog administrator.
Smart City Consulting said...

Polar Donkey:

Around here, we give ourselves too many excuses for why we can't do something - we have two governments, we're too poor, we have too many minorities, we are too this or that. Our governmental structure is no different than 99 percent of the rest of the U.S. who administer contracts for outsourcing. And, local government is signing hundreds (if not thousands) of contracts now, so it's not as if we're suggesting that they add some new authority. And best of all, contracts that have to do with privatization require legislative approvals, so unlike some other contracts, an outsourcing contract would have a full public airing and media coverage. We think you may have such a strong political aversion to the subject that you missed our points about the cultural resistance to real change. I think we share the same point of view. To that point, research indicates that the important benefit of outsourcing is its impact on innovation and cultural change, not budgets. We thought we made that point, but regardless, as long as we think we are so different that we can't consider all the operational options that other cities have, we relegate ourselves to more of the same. As we said, we are not hard and fast one way or the other when it comes to privatization, because in the end, we're for whatever delivers public services in the most effective, responsive way, not simply in the cheapest. SCC

mike said...

Excellent post! Great use of examples. More like this please.

Smart City Consulting said...

Thanks, Mike, we'll try.