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Blue Model Death Watch
Australia’s Conservatives Eye Privatization

Australia’s conservative government is looking to privatize parts of a number of costly agencies, the Wall Street Journal reports:

In a move that would be risky in a charged election year, due to the popularity among voters of the country’s generous health and welfare system, Prime Minister Malcolm Turnbull said on Tuesday the conservatives were looking at outsourcing a range of government payments worth up to 50 billion Australian dollars (US$35.43 billion).

“The government is as always totally committed to Medicare,” Mr. Turnbull told Parliament. “What we are looking at…is improving the delivery of government services, looking at ways to take the health and aged care payment systems into the 21st century.”

Treasurer Scott Morrison may test market appetite for a deal soon after the next national budget statement in May, which could clarify the future of several privatization offers being looked at by the conservatives.

Australia is struggling to adjust to a fading resources boom that is shrinking government coffers. A sharp slowdown in mining investment has forced the government to look harder for ways to trim a budget deficit that grew markedly under the previous Labor administration.

While some things that governments do can or should really only be done by government workers, a very large proportion of government activities could actually be carried out by private contractors—administering government benefit programs like Social Security, disability payments and so on. This is routine clerical work, and governments have been unable to get the efficiencies that private companies can—through automation, for instance. Civil service-protected government employees for many (not all) tasks are more expensive and less efficient.

American politicians should watch what happens in Australia closely. Will the reforms set off a huge reaction that sinks the party that suggested the idea at the next election? Will the idea actually be tried, and if so, does it succeed (presumably after a bit of a shakedown cruise) in actually saving money while maintaining or even improving the level of service? This is a work in progress and shifting functions out of government into the private sector where appropriate is something that all governments are going to have to do sooner or later.

We’re lucky in the U.S. in that we can experiment with different approaches at the state level and see what works. And we already contract out more government services than many Americans realize (parts of the food stamp program, notably). But there’s probably much more that can be done.

One idea for the next administration: set up rules at the federal level that allow and encourage states to experiment with innovative methods of delivering services to see if there are ways of reducing costs.

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  • WigWag

    Privatizing service delivery by federal agencies is a good idea in theory; the question is how it works in practice. Via Meadia is right; social security offices provide a picture-perfect opportunity to experiment with privatization. Here’s the rub; federal and state governments are frequently required by statute or administrative rules to award contracts to the lowest bidder. The lowest bidder to a RFP (request for proposals) is rarely the bidder who can most capably get the job done. “Cheap” does not necessarily equal “good” and the end result can be that the private company who wins the contract often performs no more competently, or even less competently, that the government employees who were replaced. If you want perfect evidence of this, look how the bidding process works at DOD or the Department of Veteran’s Affairs.

    Until the bidding process is fixed, and until the requirement to accept the lowest bid is eliminated, there is no solution here at all.

    • CapitalHawk

      Don’t forget the set asides for women owned business, and minority owned business, and service disabled veteran owned businesses, and small businesses. I’m sure there are more. Note that none of these types of businesses are necessarily good at what they do (although they might be), but they get preferred treatment in bidding for government work.

  • qet

    The only thing worse than government employees administering taxpayer funds is private companies administering taxpayer funds. WigWag is partially right in pointing out the FAR, a regulatory regime approaching the tax code for bulk and complexity (and opportunities for tactical behavior). If you have had nothing but good experiences with, say, your insurance company when resolving a claim issue, then maybe you’ll disagree. But I don’t think there are too many of you out there.

    Speaking of insurance, it is interesting that this privatization-of-payment-processing is being bandied about when it has long been suggested that one reason US health care insurance costs are so high is that the private insurers have too large an administrative overhead, which increase premiums and which would be consolidated/eliminated if the government took over the administration of heath care payments.

  • FriendlyGoat

    The “administration” of Social Security and Medicare is not the main financial problem with Social Security and Medicare. If and when people here start talking about getting more efficiency into that “routine clerical work” and/or “taking health and aged care payment systems into the 21st century”——heads up—-some corporations are about to screw over some individuals. Nothing else could possibly be intended and nothing else could possibly happen.

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