Rules of the Markets = Free?

Rules of the market is the mantra I have always advocated, rather than lumping everything together as ‘free’.

Cost reduction was the key benefit claimed by privatization. We conduct a meta analysis of all published econometric studies of water and waste production in cities since 1965. Little support is found for a link between privatization and cost savings. Cost savings are not found in water delivery and are not systematic in solid waste collection. Theoretical expectations for cost savings arise from the benefits of competition and the incentives of private ownership. However, empirical results show the importance of market structure, industrial organization of the service sector, and government management, oversight and regulation.

Most of the academic literature shows government contracting is a sensitive business that requires diligence, planning and management resources, and that it may be unsuited to certain goods and services. Additional rules for overseeing contracting processes may be necessary to ensure agencies prepare properly for contracting, and weigh all options for service provision. In Massachusetts, for example, a commission evaluates proposals for using private contractors prior to implementation.
In a separate paper, Sclar found the commission saved money in Massachusetts by preventing inefficient contracting. He concluded:

The privatization law has created an atmosphere where state agencies are forced to think like private firms as opposed to assuming that a private provider working under contract will automatically solve any problem at a lower cost. It compels state agencies to think through the pitfalls that lie ahead and prods them to be sure they are making the highest and best use of scarce resources in difficult fiscal times. It avoids the squandering of public funds on untested ideas that has plagued privatization efforts in so many other places.

When agencies do not take it for granted that contracting is always efficient, they should be better prepared to manage contracts and may be more willing to reform service delivery systems by more effective means than privatization. At the very least, this research shows that policymakers have good reason to examine the cost-efficiency of the rapidly expanding federal contracting industry — which has doubled in size in the last five years. Any review of contracting practices should determine the conditions under which privatization is a viable way of improving government performance.

A businessman uses rules of the market only, except when selling a product to increase volume of sales. Then he may rely on marketing, which is devised to sell anything. What or who is preventing rationality in government buying, even if one removes from the table the product is worth buying? No one appears able to tackle the issue?…or is it that procurement procedures are well insulated and protected? And why is this not more of an issue from all sides of the partisan divide?

Update:
A GAO analysis of DOD medical service consolidation includes the following:

However, based on the working group’s methodology, the group intended to conduct a more detailed cost-benefit analysis of whichever of the three options senior DOD leadership selected, but the group’s work ceased once the fourth option was formally approved. While DOD approved the fourth option, DOD has not demonstrated that its decision to move forward with the fourth option was based on a sound business case. Based on GAO’s review of DOD’s business case, DOD has described only what it believes its chosen option will accomplish. The business case does not demonstrate how DOD determined the fourth option to be better than the other three in terms of its potential impact on medical readiness, quality of care, beneficiaries’ access to care, costs, implementation time, and risks because DOD does not provide evidence of any analysis it has performed of the fourth option or a sound business case justifying this choice.

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