Comparative Government: Injecting Competition into Service Delivery

1
Comparative Government Injecting Competition
into Service Delivery

• Presentation by
• Linda Hallam
• Marsha Edgington-Bott

2

• The issue is not public versus private. It is
  competition versus monopoly
• John Moffitt, Chief Secretary to Massachusetts
  Governor William Weld

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Tax Revolt, Forced Change, Initial Losses

• During a tax revolt in 1978, the Phoenix city
  council decided to contract garbage collection
  to the private sectorbeginning one of the most
  extensive experiments in public-private
  competition.
• Public Works divided the city into districts and
  bid them out on five to seven year
  contractsroughly one a year.
• The city bid against private companies and lost
  the first four rounds of bidding.

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Public Works Forced to Create Efficient Business
Model

• The losses forced the Public Works Department to
  rethink how they operated.
• Shedding excess labor wasnt enough savings to
  compete.
• Competitive solution cost accounting system to
  determine precisely how much services cost per
  household per month and suggestion program and
  awards to incentives for workers and drivers.

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Public Works Wins One

• Public Works scours marketplace to find most
  efficient collections trucks bids and wins
  seven-year contract in 1984.
• Private sector in turn forced to be more
  efficient/cost conscious.
• Between 1981 and 1984, Phoenix increasingly
  contracted out city services.
• Savings in first decade estimated to be 20
  million between accepted bids and next lowest
  bids. Competition forced all bids down so this
  is only a fraction of savings.

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Paradox of Monopolies

• Enduring American paradox of attacking private
  but embracing public monopolies.
• Competition between policy agenciesturf
  warsmakes it harder to govern.
• Competition between government service providers
  improves services.

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Advantages of Competition

• Greater efficiencymore bang for the buck. (On
  average public service delivery is 35 to 95
  percent more expensive than contracting.)
• Monopolies private or public forced to better
  respond to needs of their customers. Classic
  example U.S. Postal Service handled half of all
  packages in 1971 by the late 1980s it was down
  to 8 percent.
• Innovation awardedrole of inertia, politics,
  unions reduced.
• Public employees enjoy improved morale and take
  more pride in their jobs.

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Varieties of Competition

• Public versus private
• Private versus private by far the most common
  approach, private firms competing to supply
  public services.
• Load shedding simplest in that government turns
  over services to private market can be
  problematic when government entities cant hold
  private firms accountable.
• Procurement well known method to secure
  competitive bids.
• Contracting common method to turn services over
  to the private sector however, can be difficult
  to administer correctly because of the skill
  required to write and monitor contracts.

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Problems and Solutions

• Lowball bids
• Private contractor becomes monopoly
• Fraud
• Criteria to prevent corruption competitive
  bidding competition based on accurate
  information contractors monitored oversight by
  relatively nonpolitical body

10
Competition for Internal Governmental Services

• Sort out proper department/agency goals
• Decide which activities are better as
  monopoliesutilities
• Bottom line enterprise management forces manager
  to act
• Competition not dependent on good managers
  competition for customers forces improvements and
  innovations
• Competition is permanent force for innovation

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Public Education A Case Study

• America is the only major developed country in
  which there is no competition within the school
  system.
• The American public school system is a near
  monopolyno performance standards and little
  competition either within the system or from the
  outside.

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Choice and Competition in Education

• Since 1988, at least seven other states have
  followed Minnesotas lead, offering students the
  option of attending school in a different
  district.
• Many of these systems give parents a choice of
  schools, but dont really force schools to
  compete.
• Competition breeds accountability.
• Only competition can motivate all schools to
  improve because only competition for customers
  creates real consequences and real pressure for
  change when schools fail.

13
The Minnesota Experience

• Minnesota was the first state to institute
  statewide choice, triggering the national debate
  about choice.
• Late 1970sCitizens League created a task force
  to examine the results of court-ordered
  desegregation.
• Resultsregardless of race or class, what people
  were most disturbed about was the declining
  quality of their schools.
• 1984John Brandle, a state senator introduced a
  bill to give low-income students vouchers they
  could use at any school, public or private. The
  bill failed.

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The Minnesota Experience--cont.

• A separate clause in the bill allowed juniors and
  seniors to take their state education dollars to
  a college and finish high school while earning
  dual credits.
• Year one3,600 students or two percent took
  advantage and by 1987 5,700 students or five
  percent.
• 1987a second bill allowed students 12 to 21 who
  were not succeeding in one school to attend
  another, as long as it didnt have a negative
  impact on desegregation.
• 1988 legislature finally passed full choice
  program.
• 1991legislature passed a bill that allows groups
  of teachers to create new public schools.

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The Equity Issue

• The greatest objection to competition between
  schools is based on a concern for equityfear
  that the education market would segregate by
  income group.
• A voucher system could be set up forbidding
  schools to charge tuition beyond the voucher and
  require some degree of racial balance.
• Parents need reliable information about the
  quality of each school to make informed choices.
  Some are concerned this might adversely affect
  low-income students more.
• Basic standards are needed to control the quality
  of education.

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Managing Competition

• Just as in education, unregulated markets
  generate inequity.
• Organizations can cream off the most profitable
  business
• Contractors offer fewer benefits
• Governments tend to more aggressively hire and
  promote minorities and women than private
  contractors.
• Carefully structured competition can produce more
  equitable results than service delivery by a
  public monopoly.

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Conclusion

• Competition is here to stay.
• The private sector is rapidly taking market
  share from public organizations.
• Our public sector can learn to compete, or it can
  stagnate and shrink, until the only customers who
  use public services are those who cannot afford
  an alternative.