Government, Inc.: the cost of government competition with private enterprise

John Palatiello Contributor
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Recently, Wall Street Journal columnist John Fund observed, “the politics of the next decade are likely to center on a debate over how to deal with a public sector that often seems to exist more for the benefit of its employees than its citizens.”

As America observes Labor Day 2010, it is time to recognize that the paradigm in America’s political and labor discourse has dramatically shifted.  While the great debate and struggle of the 20th century was labor versus management, the 21st century has ushered in a new dichotomy: government vs. private enterprise.

Since President Obama’s inauguration in January 2009, total private sector employment has decreased by 3.3 million jobs, while the government workforce has grown by a net 34,000.

This trend comes amid another transformation in the American workforce.  Earlier this year, the Bureau of Labor Statistics reported that 12.3% of U.S. workforce belongs to a labor union and, for the first time in U.S. history, more public sector employees (7.9 million) belong to a union than private sector employees (7.4 million).

It is not surprising that campaign spending by public sector unions favors Democrats.  What is surprising is the imbalance in their preferences.  In 2008, the International Firefighters PAC contributed $2.7 million to candidates, 87% to Democrats, Service Employees International Union PAC, $2.3 million, 94% to Democrats, American Federation of State, County & Municipal Employees PAC, $2.1 million, 98% to Democrats, and American Federation of Teachers PAC, $2.2 million with 99% to Democrats.

From botching its response to Hurricane Katrina to failing to address the mortgage crisis to ineptly handling the oil spill in the Gulf of Mexico, the federal government has become too big to succeed.  The reason?  Government, in an effort to be all things to all people, cannot provide the basic services fundamental to its core mission.  Above all, the federal government is spread too thin, attempting to carry out activities best left to private enterprise.

The total federal payroll is 2,803,000. Of that, 1.9 million are in non-postal, non-uniformed military positions.  More than 850,000 or 44.7 percent of the non-postal, non-military are in positions that are commercial in nature. Those are functions also found in private companies — small business and large corporations.  However, fewer than 20 percent of the 850,000 positions have ever been subjected to the “Yellow Pages” test, which applies market competition to commercial functions of the government to determine the best value provider.

When campaigning for his stimulus bill in 2009, Mr. Obama said his goal was to “create 3 million new jobs, more than 80 percent of them in the private sector.” Senate Majority Leader Mitch McConnell (R-KY) replied, “Well, do we really want to create 20 percent of the jobs in the public sector? That would be 600,000 new government jobs. That’s about the size of the post office work force.”

Recent studies show the astonishing cost of government employees’ above-market salaries and their impact on the debt and deficit. The Heritage Foundation estimates that the Yellow Pages test would save taxpayers $27 billion per year. Heritage also reports that federal workers in the aggregate receive pay and benefits of $47 billion per year more than private sector employees.  Americans for Tax Reform calculates that the typical federal worker costs taxpayers $4.27 million over the course of his or her career.

What has been Washington’s answer?  Congress has imposed a moratorium on any public-private competition, effectively saying “no” to the $27 billion in annual savings.  And the Obama administration has ordered “insourcing,” actually canceling contracts with the private sector and moving the work to federal employees in government agencies.  Claims that such a move is only directed at “inherently governmental” activities, functions that must be performed by government workers and never should have been contracted in the first place, haven proven false.  Contracts for food service, flight simulation training, mapping, meteorological services and audio visual services have been recent victims of insourcing.  Moreover, any assertion that insourcing saves money has been debunked, by no less that Defense Secretary Robert Gates, who on August 9 admitted, “We weren’t seeing the savings we had hoped from insourcing.”

As early as 1932, a special committee of the House of Representatives expressed concern over the extent to which the government engaged in activities which might be more appropriately performed by the private sector. The first and second Hoover Commissions expressed similar concern and recommended legislation to prohibit government competition with private enterprise. Unfair government-sponsored competition has been a top issue at every White House Conference on Small Business, with the 1980 small business platform saying “The Federal Government shall be required by statute to contract out to small business those supplies and services that the private sector can provide.  The government should not compete with the private sector by accomplishing these efforts with its own or non-profit personnel and facilities.”

With government unfunded pension liabilities estimated as high as $1 trillion, the cost of big government better left to the private sector will burden the economy for years to come.

John M. Palatiello is President of the Business Coalition for Fair Competition (www.governmentcompetition.org), a national coalition of businesses, associations, taxpayer organizations and think tanks that are committed to reducing all forms of unfair government created, sponsored and provided competition with the private sector. BCFC believes the free enterprise system is the most productive and efficient provider of goods and services and strongly supports the Federal government utilizing the private sector for commercially available products and services to the maximum extent possible.