The perils of privatization.

• Author: Shenk, Joshua Wolf

Monkey Island was once a very sad place. The South American Spider Monkeys who lived there had no trees, just ropes and jungle gyms. They didn't have grass or dirt, just concrete. And the whole island--an exhibit at the San Francisco Zoo--fissured after the 1989 earthquake.

Until recently, in fact, the entire zoo was in dismal shape. Maintenance, gardening, and custodial services had been cut back and a number of educational programs eliminated entirely. Then, in 1993, the city put management of the crumbling zoo in private hands.

The turnaround has been remarkable. The new management, the San Francisco Zoological Society, boosted budgets for marketing and advertising, drawing 1,500 new members and an estimated 60,000 new visitors annually. It promptly raised $12 million and renovated exhibits for otters, flamingos, and kangaroos. And Monkey Island will be replaced with an enormous South American Gateway, complete with a cloud forest aviary, an underwater viewing area, and five kinds of exotic monkeys. Handing the reins to the Zoological Society has meant "not just the zoo's salvation, but a renaissance," says David Anderson, the zoo's director.

When House Speaker Newt Gingrich, and even President Clinton, talk of privatization, they want you to think of the San Francisco Zoo. By replacing stolid government bureaucrats with vibrant entrepreneurs, they say, we'll get better service for less money. Privatization--involving the private sector in public services, or selling state assets outright--is hot in 1995. In particular, contracting out--hiring a business or non-profit to do the public's work at taxpayer expense--is the vogue, bipartisan answer to all sorts of governmental problems. The Internal Revenue Service wants private firms to hound those in debt to the government; the Bureau of Prisons wants private firms to lock up prisoners of the state; the Central Intelligence Agency wants private firms to, well, "gather intelligence."

What else is on the block for privatization? Everything from housing to air traffic control to food and drug inspection. "I've never seen anything like this," marvels Bob Poole, chairman of the libertarian Reason Foundation. "It's a contest to see who can privatize better and faster."

But neither privatization generally nor contracting specifically is a new idea. And while many politicians are hot to boast of its benefits, they seem afflicted with selective amnesia. Yes, contracting can spur efficiency. But it can also be a disaster. Remember the Pentagon's $544 spark plugs, $999 pliers, and $547,000 fax machines?

In fact, much of what commonly passes for "bad government" is actually bad contracting. Medicare is a fine example. The program is almost entirely run by private medical equipment suppliers, hospitals, insurance companies, and "fiscal intermediaries"--the people deciding who, what, and when to reimburse. They do such a poor job that recent Senate hearings found $27 billion a year in annual fraud. In one case, a Texas supplier of medical equipment billed the program for $1 million worth of custom-fit orthotic body jackets, when it actually delivered wheelchair pads worth far less.

Politicians love to tout the efficiency of the private sector as a salve for bad government. But over the last 50 years a virtual shadow government of contractors has sucked up taxpayer money and chipped away at the legitimacy of public institutions. Without clear guidelines, good information on what contractors are doing, and the ability to fire them when they screw up, government often ends up spending much more than it would cost to do the work with its own employees.

"Steer, don't row" is the nineties mantra of public sector reform. And though private enterprise and competition have a place in government, experience shows that all hell breaks loose when we contract out and take our hands off the rudder.

And bad management costs more than money. When contractors assume the authority of elected officials and civil servants, that's when government begins to rot. As the country saw in the Iran-Contra affair--when Oliver North essentially contracted out foreign policy to arms dealers such as Richard Secord and Albert Hakim--some matters of the state shouldn't be put in private hands to begin with.

Not Always Better, or Cheaper

"The thread of similarity that runs through all privatization," says Rep. Scott Klug, the Wisconsin Republican who is Gingrich's point man on this issue, "is increased value to the taxpayers.... The private sector, driven by profits and regulated by market forces, performs more effectively, more efficiently, and at a lower cost."

If that were the case, the Department of Energy (DOE) would have the finest record in federal government. It relies more heavily on the private sector than any other agency, paying out 80 to 90 percent of its budget to such corporate giants as General Electric and Martin Marietta. It has only 20,000 civil servants and anywhere from 7 to 10 times that number of employees on private contract. (The precise number is in dispute.)

But DOE contractors have a miserable record.

Take the plant built in Rocky Flats, Colorado to produce plutonium triggers for hydrogen bombs. In theory, the contractor, Rockwell International, followed orders from civil servant plant managers. But while officials looked the other way, Rockwell poured toxic and radioactive waste into the ground, and stored more in leaky metal drums. It eventually left 108 separate waste dumps and toxic solvents in the earth at 1,000 times the acceptable concentration.

The problem, DOE's inspector general found in 1991, was the government's attitude: "stay out of [Rockwell's] business and let them run the show." This held true even after DOE was alerted to the trouble. In many cases it even relied on the criminals to clean up the crime scene. At Rocky Flats, DOE officials gave Rockwell $27 million to clean up five "ponds" of radioactive and hazardous waste that it had helped create. But Rockwell bungled the complicated procedur--supervisors caught their error, but not before the "cleanup" was nearly complete--and the General Accounting Office now estimates that cleaning the pond will take...