Cliff Slater’s Second Opinion column from

the Honolulu Advertiser of May 26, 1999



Here’s why we must privatize

In the last hundred or so years we have socialized many formerly private functions such as garbage collection, schools, and mass transportation.

These now government operations rarely perform as well as their private counterparts; independent schools outperform public schools, garbage is collected more cheaply by independent companies and, where mass transportation is open to competition, the independent operators win out on every measure. However, we rarely hear any discussions about why government operations perform so poorly.

UPW’s Gary Rodrigues says it is not his workers’ fault; it is a management problem. I agree with him. In fact, I would go further and say that given the state of government management it is a tribute to the dedication of most of our public workers that our government works as well as it does.

Where Mr. Rodrigues and I differ is that I do not think the management problem can be fixed. The reason is simple: Management in government is determined by elected officials. Since voters typically lack management experience, they do not value it in the officials they elect. Accordingly, we find little management experience in elected officials yet they are managing the system.

It is therefore not surprising that we end up with a system that values lack of error rather than innovation; lack of failure more than success and seniority over ability. It operates with a management and accounting system that may prevent stealing but does nothing to prevent wasting. There are no bonuses for saving money, or coming in under budget.

Since there is no ‘bottom line’, the voters cannot judge on results but rather, only on appearances. Thus, the system values the articulate idiot, someone who only has the talent to rationalize why things went wrong, why it wasn’t anyone’s fault, and why a larger budget will ensure that it never happens again.

Contrast this with the operations of private industry where voters (consumers) have far greater control. Voters significantly influence the products and services of private businesses by choosing among competitors. We choose our hairdressers, supermarkets, and dry cleaners simply based on their prices and the quality of their products and services relative to their competition.

We do not have to understand management; we merely have to shop.

We need not concern ourselves with what a garment manufacturer’s CEO gets in salary—or whether he flies first class. We simply pick one company’s shirt or dress because we prefer its price and quality to that of its competitors. If a CEO’s compensation is excessive, it will show up in prices that are unacceptable to us and we will shop elsewhere.

For government operations we cannot shop elsewhere—they are monopolies. Thus, not being able to shop, we voters turn to worrying about the wrong things. We keep an eagle eye on the compensation and travel of managing officials with the mistaken idea that if their pay is kept low and they do not travel it will keep costs down.

We fail to notice that private industry pays very handsomely for executives who have the ability to keep sales up and costs down. Since the compensation of a top company manager rarely exceeds 1% of total costs, it almost does not matter what they are paid if they can efficiently manage the other 99% of costs.

Once we voters understand our limitations—that we know how to shop but not how to manage—then the benefits of privatization will become obvious.

Footnotes for Cliff Slater’s columns are at