Profit, Loss, and Proliferation

What Are Government’s Functions?

by Cheryl Rofer and Molly Cernicek

We have become, over the past thirty years, accustomed to a government that contracts out many of its functions. But it wasn’t always that way. So perhaps it’s worthwhile to consider which functions are better kept under government control and which can be contracted out.

We can start with Max Weber’s definition of the state as exercising authority on violence over a given territory, and being the only entity exercising such authority. That implies that police and military use of violence are reserved to the state or to agents it authorizes. That last is a big loophole, but typically police actions involving violence are reserved to state-employed people, and private protection services must be licensed and are allowed less leeway in using violence. In the military, states may employ mercenaries, but they have generally been found to be less desirable than directly-employed military. Mercenaries are not subject to the chain of command to the same degree that direct employees or conscripts are, and there is always the danger, if they are part of another organization, that that organization will use its military capabilities against the state.

The monopoly on violence implies a state judicial system, to monitor and control violence and other actions against people and property. It also implies control of policy with respect to other states, because those policies and actions can lead to military interactions.

A state must provide for its own continuity, so elections and other decision-making on holders of authority must remain with the state. Education for its citizens is necessary to allow them to make responsible decisions on governance.

Because commerce is an essential part of what people do, the state needs to supply infrastructure for commerce. And here we get into the gray areas. The United States government has provided mail and other communication services, built a national highway system and airports, and may yet insist on broad health insurance coverage. It has licensed monopolies or near-monopolies in communication services, transportation, provision of household water, and electrical power generation. Some of these services are natural monopolies, but changes in technology can change that status.

So telephone service, when it depended on wires and central exchanges, was a natural monopoly. Cell phone service changed that and therefore changed the economic model, although the government still provides regulation over the providers. For situations like this, it may be better to consider business and revenue models to determine whether government or private industry is better at a task.

Under Ronald Reagan in the United States and Margaret Thatcher in Britain in the 1980s, the idea that the market could do it all better took hold and is with us still. One of the arguments in favor of privatization was that the private sector, because of its competition in the market, is much more efficient than the government, which is not subjected to the same discipline. Another argument was that the civil service system was inflexible, and that private firms could supply personnel at times when they were needed in government, and then divert those personnel to other, nongovernmental tasks when they were no longer needed in government, saving the government not only unnecessary salaries short-term, but more costly retirement obligations long-term. This presented a reasonable rationale to contract with private firms.

There is more to these arguments, though.

For every civil service position contracted out, one might expect that a full-time contractor position would be created for a limited term and that federal government expenditures would decrease by contracting. Yet this has not occurred.

Although no single government office tracks numbers of contractors, NYU Professor Paul C. Light estimates the number of federal contractors grew from 4.4 million in 1999 to more than 7.5 million by the end of fiscal year 2005. A continued upward trend is expected.

This dramatic increase in governmental contracting over the past decade has brought with it a host of other issues including waste, fraud, corruption, crime, accountability, and poor personnel and wage practices. Many contracts are awarded noncompetitively.

So, an idea created to save taxpayers money has ended up costing the taxpayers far more than many would have thought. A global governmental contracting industry has grown into hundreds of millions of dollars, thousands of companies, and millions of private sector employees dependent on our government staying huge for their livelihoods. Now what?