Does Privatizing Government Services Save Taxpayers Money?

Study: Privatizing government doesn't actually save money

(Christy Goodman/The Washington Post)

The theory that the federal government should outsource its operations to private firms usually rests on a simple premise: It saves money. But why should we believe it saves money? Often the argument is made by pointing to salaries for public- and private-sector employees in comparable jobs and noting that the private-sector employees make less. So outsourcing the task to the private worker should be cheaper, right? That's the theory, at least. But a new study from the Project on Government Oversight suggests that this theory is quite wrong. In many cases, privatizing government turns out to be far more costly.

For its study, POGO decided to do something different than the usual method of comparing public- and private-sector salaries. Instead, the group scrutinized the actual contracts that were awarded to companies for specific tasks and compared them with what it cost the government to do the same job in-house. They looked at 550 contracts — all deemed "fair and reasonable"— for 35 different jobs across government agencies, from auditors and engineers to food inspectors and groundskeepers.

As it turned out, the private contractors cost more in 33 of those 35 jobs. On average, the service contracts paid private employees 83 percent more than the government would pay a federal employee doing the same job (and that's even taking into account health care benefits, pensions, and so on). There's a long debate about whether workers in the private sector actually make less than their federal counterparts, but it turns out this is all beside the point. The POGO analysis found that private contractors working with the government make, on average, twice as much as a comparable private-sector worker.

In any case, this is just one study, and POGO does include caveats about the difficulties of collecting good salary data. But maybe the most stunning revelation in the report is that the federal government doesn't have a solid system for determining how much money it saves or wastes by outsourcing various functions to private firms.

And this seems like something we'd like to know: Since 1999, the number of federal workers employed by the government has stayed roughly constant at about 2 million. But the number of private contractors has ballooned, from 4.4 million to 7.6 million in 2005 (these numbers turn out to be surprisingly difficult to pin down, since records on contractors are fairly unreliable). Last year, the government spent some $320 billion on service contracts. And yet there's no ready way to tell whether this outsourcing boom is actually saving taxpayers money.