For the college student, there is nothing quite like summer vacation. It represents a time for recuperation away from university work, a time to recharge and prepare for the coming Fall semester. In my case, it also means having to read a lovely Public Administration textbook for an online summer class that bashes libertarian/conservative principles and values whenever possible. The textbook is titled Politics of the Administrative Process[1] and is authored by a scholar named Donald Kettl.

Just a week ago, I had the pleasure (or rather, displeasure) of reading perhaps one of the worst arguments I had ever read against free enterprise within the textbook. The argument is written into the format of a case study in which students are asked to read and answer questions based on the excerpt. “Everyone knows that the private sector is more efficient than the public sector,” the case study begins on page 224 of the textbook. “A major case for privatizing public work, its proponents say, is that the private sector can do it better, cheaper and smarter. But is ‘everyone’ right?” Well, considering the indisputable amount of empirical evidence that supports the success of market economies all around the globe, the answer is largely yes. However, let us analyze the argument the textbook lays out.

To summarize, the purpose of the case study is to prove that the public sector can indeed efficiently outcompete the private sector. Kettl’s argument hinges on a couple of examples within the cities of Chesapeake, Virginia, and Phoenix, Arizona. According to his textbook, public trash-collecting firms within both of these cities successfully competed against private trash-collecting firms in bidding for a contract to provide their services within certain portions of each city. The key to the success of the public sector in both of these examples, according to Kettl, is that the rampant threat of job loss amongst public sector employees (due to the competition by the private firms) forced them to innovate new methods to cut costs in order to provide their services at lower costs. Kettl touts this model as a complete victory over the private sector, arguing that it had saved the taxpayers roughly 30% in total costs within both Chesapeake and Phoenix for the services provided by the public entity as opposed to what it would have been had the same service been provided by private firms[2]. In concluding his case study, Kettl writes (in a very snide and condescending manner) that what “’everyone’ knows- that the private sector is more efficient than the public sector – isn’t true. Armed with the right incentives, government can outcompete the private sector.”

Again, producing two examples is not nearly enough to refute an entire body of evidence. At this point, the author has done nothing but provide us with the equivalent of anecdotal evidence. Has Kettl demonstrated that these examples are consistent with some sort of statistical pattern within the body of data collected on the subject? No. But in Kettl’s mind, the importance of these examples outweigh the success of capitalist market reforms in countries such as China or India.

However, there is a much bigger problem with the author’s argument: the local city governments in question had crippled the ability of the private firms to effectively compete in the first place. Kettl reveals within his own argument that both city governments had placed a series of onerous restrictions on competitors seeking to compete for the contract in the name of “fair competition”. Specific examples included requirements to offer employment to any public employees that lost their job as a result of competition and a requirement that all potential bidders were to present evidence of trash-collection work in similar areas. In Phoenix, a particularly harsh restriction was imposed that prevented private contractors from serving more than half of the total households within the city in order to ensure that the city’s public agency “remained viable”. Once seen in this light, these case studies are nothing more than examples of how government creates monopolies.

As I mentioned beforehand, I was required to answer a series of questions about what I had read for an assignment. The first question asked me whether or not this model of “competition” ought to be spread to more cities, services, and levels of government. In answering this question, I wrote out a succinct refutation to Kettl’s argument, ending my answer with a stubborn “no”. I have placed my full answer (or rather, rebuttal) to the question here for your viewing pleasure, in-text citations and all:

———————————————————————————————————————

            What the local governments had done was shackle the activities of private firms by increasing their costs of carrying out their services – effectively protecting the public firm from competition. For example, one of the more onerous restrictions imposed by city government was a requirement on the part of private firms to offer employment to public workers who lost their job as a result of competition (Kettl 2018). Forcing firms through legal fiat to absorb employees into their operations will necessarily raise production costs for their operations, putting them on unequal competitive footing with the public firm. Private firms have an incentive to economize on their input costs in order to maximize their profits, lest they suffer losses and be forced out of business. The savings generated by these cheaper input costs are passed on through the process of competition to consumers. Public firms do not respond to these profit-and-loss mechanisms because they receive their means of operation via government funding. Thus, the public firm operates under different incentives. Left unhindered, a private firm could have easily distributed the same service more efficiently with cheaper costs than the public firm simply because private firms respond to different incentives as opposed to public entities. However, because the city governments effectively shut the door on the competitive process of the marketplace, this did not occur.

While the author touts “cost savings” accounting numbers, there is a real economic loss because scarce resources (in this case, the capital and labor held by the private firms) were wasted and remained unemployed in their most efficient uses. From the standpoint of society as a whole, this loss is reflected in higher costs to the taxpayer (higher than they would be had the competitive process been allowed to fully play out) and less business for the private firms. Therefore, I do not believe that “competition” of this kind ought to proliferate any further to further services at any levels of government.

———————————————————————————————————————

What I find bothersome about this textbook is that many who read it with a gullible mind will fall victim to its poor arguments that fail miserably after critical examination. Kettl truly exemplifies the snide attitude of many leftist academics who believe that society ought to be socially engineered to their liking.

[1] Kettl, Donald F. Politics of the Administrative Process. Los Angeles: Sage/CQ, 2018. Print.

[2] Politics of the Administrative Process. Page 224-225