When the public sector does it better

I went to Charlotte-Mecklenburg public schools for 13 years. From my perspective, my CMS education was just as good as any other public or private K-12 education. For that, I feel extremely lucky. My teachers were bright and committed to their jobs. When I graduated I had my pick of Ivy League schools or a full-ride at Duke, and I felt prepared for all my first-year coursework. I’m well aware there are huge inequities between the best and worst public schools. Nevertheless, in comparing my high school, Myers Park, where the per pupil expenditures come in around $5,379, and Charlotte’s most successful private schools, where high school tuition exceeds $21,000, I can say quite simply that the tenured government bureaucrats at Myers Park are doing something right. But how could this possibly be? Haven’t we all learned that government employees are scum, and all government organizations bureaucratic nightmares?

Research confirms my anecdotal claim that the private sector isn’t able to do a better job at educating North Carolinian students than the public sector. Robert Bifulco and Helen Ladd from Duke’s Sanford School of Public Policy found that when controlling for student fixed effects, North Carolinian students make smaller achievement gains in charter schools than they would have in public schools.

Conservatives purport with fervor that the private sector is always more efficient than the public sector, but real world examples routinely violate this principle. Countries with single-payer healthcare spend a much smaller percentage of their GDP on healthcare and have healthier citizens than the United States. Meta-analysis of publicly-run and privately-run prisons shows that the latter are not conclusively more cost-effective than the former. Duke researchers have found that for-profit hospitals charge Medicare more than their government-run counterparts, with little difference in patient outcomes. These examples alone should give us pause and encourage us to look for patterns in which the public sector might outperform the private.

The first question we ask is: When should something be paid for by tax dollars? Sometimes, it’s pretty clear that a valuable thing won’t be paid for unless citizens agree to each pay their fair share through taxation. As a simple example, before there was free, public K-12 education, lots of people just didn’t go to school, which was bad. An appealing alternative would be to rely on philanthropy, rather than tax dollars, to solve a problem. This could potentially work if individuals increased their charitable donations when taxes are cut, but projections have predicted that this isn’t necessarily the case. In 2011, Durham voters recently approved a quarter-cent increase in the sales tax to fund education programs. In theory, we could have also accomplished this goal if each Durham resident wrote out a check to Durham-based nonprofits providing pre-K to low-income children, but will Jill write out her check if she thinks that Jack won’t do the same? Tax financing represents a covenant by community members saying “we agree this X is valuable, and so we will agree to share in the cost of creating X.” Taxation helps us overcome collective action problems.

Once we’ve decided a service should be publicly financed, we then ask: Should this service be performed by the government itself or should the government contract it out? A key issue here is how “operationalizable” a task is. Let’s say it costs a city $5 million to take out all the trash. If a company says they can do it for $4 million, very little risk is involved in offering them a contract, because success or failure in trash-removal is easy to measure—we can explicitly list the steps that need to be performed. Cost-savings in trash-removal will represent procedural innovation and greater efficiency, and there won’t be much need to audit the trash-disposal company. Compare that to the for-profit prison industry. When a for-profit prison corporation “cuts costs” by weakening rehabilitation and job training programs, our community suffers. If they end up using their profits to lobby for longer prison sentences, they will gain at the taxpayer expense. A for-profit prison operator, hospital or university has a stronger incentive to try to “game the system” than its public or non-profit counterparts. When genuine savings can be found, the corporate shareholders, rather than taxpayers, will reap much of the benefits. We should be wary of privatizing any government service where what “success” means can’t be easily quantified and measured without a high risk of cheating.

A second class of examples is when coordination is critical. If there were a snowstorm, would you rather have the government plow the roads, or have church groups and local nonprofits have to patch together a plan? Sometimes, having a unified strategy works better than piecemeal solutions.

Humans respond to a profit motive, but we also respond to altruism, community values, prestige and pride in our work. The private sector is great at many things, but in key circumstances underperforms. In deciding when to privatize and when to use government to solve problems, we should reject dogmatic thinking and begin with an agnostic look at evidence.

Elena Botella is a Trinity senior. Her column runs every Thursday. You can follow Elena on Twitter @elenabotella.