Wednesday, March 09, 2005

If I had a Hammer: The Limits of Privatization

Note: My comments are those of a private citizen, and do not represent the Texas Health and Human Services Commission in any way.

Note also: If you are wondering why a priest is talking so much about the welfare system, see this post. Next week, Orthodox Lent begins, and so I will be blogging a lot less on this topic come monday next.

There is an old saying that if your only tool is a hammer, every problem starts to look like a nail. This is certainly true with the privatizing government work to make government more efficient. It has almost become a fad, and one almost wonders if we will one day replace the military with mercenaries that work for a company traded on the Dow Jones Industrial.

I will readily agree that privatizing aspects of government business often makes sense. For example, if an agency has its own print shop, but there is a private printer who can do the same printing for less, it makes sense to privatize your printing. And that printer can do it for less because this is his business, and he knows how to do it efficiently, and he’s in it for his own profit which motivates him to find ways to be efficient. He can be innovative, and can readily change how he does business to find new ways to beat the competition.

However, when it comes to some aspects of government work, this simply does not work. One can find printers in the yellow pages, but one cannot find a for-profit company whose business it is to give people money, food, or medical care for free. There simply is no free market element to giving people stuff… for nothing -- which is what welfare is.

If the proposal was to contract with private charities, you might have something to work with, because the Salvation Army, for example, does have experience in giving people stuff for nothing, and doing it efficiently and effectively. But if you are going to leave the same rules in place that govern welfare programs today, there is no reason to believe that any entity is better suited to administer them than the people who are currently doing it. This is particularly true in Texas, were the Texas Department of Human services had one of the lowest error rates of any state in the country, and for 5 or 6 years straight received enhanced funding from the federal government as a reward for that level of accuracy (something no other large state had ever done). And the overhead cost in Texas are among the lowest in the country… it’s workers being among the lowest paid in the country.

A private company cannot be innovative when it comes to policy and procedures that are mandated by the State and Federal government. It would have to jump through the very same hoops. And what most people who have never actually worked with these programs often do not realize is that the policies are so complicated that it takes about 6 months before one can even begin to work these cases accurately, without someone constantly looking over their shoulder and checking their work. It takes about a year to begin to really work independently. And about another year before one has really been around the block, and knows how to handle just about any case that they might encounter. Private companies can only economize on staff – and given the low level of pay that already exists, there is not much room to economize. Paying their staff less, and providing them with even less job security and medical benefits will mean that they will have a higher turn over rate. Our agency already has a problem with high turn over simply due to the low pay and the high stress, which getting back to the time it takes to properly train someone to do the job right, means that at a certain point you are being penny smart, and pound stupid when you “economize” on their pay and benefits.

The part of our agency's work which has already been privatized (the Choices Program, which is the part of the agency that helps people find work) has a huge problem with turn over, and consequently has a high percentage of staff that do not know the policies pertinent to their work. In my job, I interact with these private contractors a great deal, and about a year ago had a problem with one of their workers who made an error, and when I spoke to that person’s supervisor I was told by the supervisor that she was new, and didn’t know the policy either. (Holy blind leading the blind, Batman!) I would also say that they have a much greater tendency to cut corners with policy, to do things that help them meet their numbers but cause their clientele to suffer needless (and often unfair) interruptions in benefits, and generally operate in ways that shift work back onto the state workers in HHSC than did their state employed predecessors prior to privatization.

In short, these private contractors owe an allegiance to making a profit, first and foremost – and while there is nothing wrong with a business making a profit, that is not why we have a welfare system. The number one goal needs to be to help the people we are asked by the government to help, and to give them the benefits that the government has determined that they should have based on their needs. If there is any other bottom line at work, then the eyes are on the wrong prize.

Why don’t we replace the military with mercenaries? Because we want soldiers who fight for the love of their country and aren’t in it just for the money – and who are answerable only to the government, which is answerable to the people. The reason why we should not have a for-profit corporation running welfare is because we should have people who want to help the needy of our country rather than people who want to make a profit off of the needy. We should want people who answer to our elected representatives, rather than to their stock holders.

What I would say to those lawmakers that are advocating privatization as a means of saving money is this: If you don’t like these programs, eliminate them. If they are too cumbersome, and you want less bureaucracy, then stop complicating them with the laws you pass, and simplify them. But if you want to keep these complicated programs in place, at the same benefit levels as we have today, then please properly fund the administration of these programs. When you cut staff, or have staff that don’t know what they are doing because you can’t find competent people who will work for the pay you are offering, or keep them when you do, this only results in greater fraud and abuse. It takes time, and knowledgeable staff to work a case accurately. It takes a lot less time and skill to simply give people what they want, and get them out of your office. We have to decide what we want, and then pony up the money needed to accomplish what we have decided to do.

For a recent example of Privatization gone bad see:

The St. Petersburg State: Reality pops state's privatization bubble


Convergys' star not dimmed by stumbles

And to read about Accenture (the Bermuda based company that stands to gain from the privatization of much of the Texas Health and Human Service Commission's work), see this page.

And also Accenture accensured