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Posts Tagged ‘Contracting Out’

Using road management as an example, John Stossel explains that government does a worse job than the private sector, even at things that theoretically are a government responsibility. Part of this is because of the profit motive, to be sure, but a big reason is probably because government bureaucracies inevitably are filled with overpaid bureaucrats who understand that job security is best assured by maintaining problems rather than solving them. Stossel makes an excellent point by noting that “contracting out” is not the same thing as genuine free enterprise. But at least it means whatever government is doing (either good things or bad things) will be done for less cost and with more competence.

Free enterprise does everything better. Why? Because if private companies don’t do things efficiently, they lose money and die. Unlike government, they cannot compel payment through the power to tax. Even when a private company operates a public facility under contract to government, it must perform. If it doesn’t, it will be “fired” — its contract won’t be renewed. Government is never fired. Contracting out to private enterprise isn’t the same thing as letting fully competitive free markets operate, but it still works better than government. Roads are one example. Politicians call road management a “public good” that “government must control.” Nonsense. In 1995, a private road company added two lanes in the middle of California Highway 91, right where the median strip used to be. It then used “congestion pricing” to let some drivers pay to speed past rush-hour traffic. Using the principles of supply and demand, road operators charge higher tolls at times of day when demand is high. That encourages those who are most in a hurry to pay for what they need. …for years there was a gap in the ring road surrounding Paris that created huge traffic problems. Then private developers made an unsolicited proposal to build a $2 billion toll tunnel in exchange for a 70-year lease to run it. They built a double-decker tunnel that fits six lanes of traffic in the space usually required for just two. The tunnel’s profit-seeking owners have an incentive to keep traffic moving. They collect tolls based on congestion pricing, and tolls are collected electronically, so cars don’t have to stop. The tunnel operators clear accidents quickly. Most are detected within 10 seconds — thanks to 350 cameras inside the tunnel. The private road has cut a 45-minute trip to 10 minutes.

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