Later On

A blog written for those whose interests more or less match mine.

Outsourcing government-run services to private industry can increase costs and decrease quality of service

with one comment

The reason privatization so often degrades the privatized service is that a private corporation must not only make a profit, it must increase profits from year to year. Eventually that means cutting back on maintenance, upkeep, hours of operation, and so on: easy ways to goose profits when efficiencies are hard to find.

Take a look at Stephen Hume’s report of what happened to the BC system of ferries after it was privatized:

A central argument for privatizing British Columbia’s ferry system was that a strict business model would prove far more efficient than continuing the system under provincial control.

Instead, the privatized model has yielded bloated management, lack of transparency, increasingly inefficient service and rapidly rising costs that now threaten perhaps $500 million in annual provincial tax revenue and place a recessionary drag on perhaps $50 billion in provincial economic productivity.

Thirty years ago, when Premier Bill Bennett’s Social Credit government ran the operation, BC Ferries serviced 23 routes with 3,800 employees and a management/administration unit of 120.

Today, it services two additional routes, but has added about 1,000 employees and has a management/administration unit of more than 600, including — based on 2011 reports — 12 vice-presidents.

This works out to one manager for every 7.6 employees. Even if you remove several hundred excluded ship’s officers from the equation, it still works out to about one manager for every 10 employees.

By comparison, Washington State Ferries, which operates under the state highways and transportation system and carries more passengers and vehicles (although with fewer vessels on generally shorter routes than in B.C.), runs efficiently with 43 managers — about one manager for every 40 workers.

BC Ferries spends about $12 on management and administrative overhead for every $1 spent on those costs by Washington State Ferries. . .

Continue reading.

It seems pretty clear that the private company is basically busting out the ferry system, stripping it of assets and revenue in order to pay good salaries to lots of administrators—it’s similar to the way the Mafia becomes “partners” in a restaurant. In this case, the ferry system is being stripped of money it needs to maintain a good level of service—similar to what it had when the government ran it.

The reason Wall Street is so interested in taking over Social Security and other pension systems is that those hold a lot of money, and Wall Street wants to siphon that off (much as they do with 401K fees and churning of accounts). The charter school movement offers cover for many private corporations to take out money that should be spent on education: it goes instead to administrative salaries, profits, and other non-educational purposes.

Written by LeisureGuy

27 November 2014 at 10:47 am

Posted in Business, Government

One Response

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  1. Reblogged this on Citizens, not serfs.


    27 November 2014 at 6:37 pm

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