There is a theory that
- private companies are more efficient than government agencies, and therefore
- governments should hire private companies to do the work of government agencies.
The primary objective of a private company is to make a profit; that is, to collect revenues that exceed its expenses. To earn its revenues, it provides goods or services, or both, to its customers.
The primary objective of the customer, as a customer, is to get the goods and services it paid for, at the lowest possible cost. This objective conflicts with the supplier’s. The supplier can increase its profit by cutting quality and raising price, but this is the opposite of what the customer wants.
Caveat emptor: it’s the customer’s responsibility to see that price and quality are not compromised by the supplier’s desire for profit.
But by our first premise, a government agency, as a customer, is not as efficient as a private company or individual would be in seeing that it gets value for money. We’ve seen the result: cost overruns, delayed completion, quality compromised, work not done.
Suppose you could overcome this problem by throwing money at it: let the government agency spend enough money to put enough inspectors on the job to make sure the product is up to quality and the cost isn’t excessive. Now you have an extra layer of inspectors that you wouldn’t need if the government agency did the work in-house instead of farming it out to a private supplier. These inspectors are government inspectors, who are not only inefficient, but also subject to influence from the private supplier, so we need more inspectors to watch the inspectors. The bigger the job, the more inspection has to be done, and the more the supplier can afford to spend to influence the inspectors.
The result? even higher cost than if the agency did the work in-house. Privatization doesn’t work.