Thursday, September 06, 2012

The Expensive Way to Do Anything

Steve Forbes writes in Forbes (September) a punchy piece illustrating the benefits of “markets where possible, the state where necessary” (and not the other way round). HERE 
“TSA Conflict of Interest Would Come as No surprise to Adam Smith”
"San Francisco International Airport (SFO) employs a private contractor for screening passengers and luggage. It’s one of only 16 airports (out of 450 in this country) allowed to do this. Last year the House Transportation & Infrastructure committee conducted a study of how screening at Los Angeles? chief airport (LAX) compared with SFO’s. The astonishing finding: SFO screeners processed 65% more passengers per screener than did their counterparts at LAX. That’s not a typo: 65%. SFO screeners receive the same wages and benefits as those hired and managed by the TSA, and SFO uses virtually identical procedures and equipment. The difference is that the private contractor in San Francisco has no sense of entitlement or feeling of permanency. Competition works. There is far less turnover of screeners at SFO, and the contractor saves money by using part-timers (all fully trained, of course) to meet peak periods rather than keeping full-timers waiting around for periodic surges.
Highly regarded transportation expert Robert Poole of Reason Foundation recounted the findings of this startling study in congressional testimony this summer (
Poole pointed out that a principal problem is the TSA’s built-in conflict of interest. It is supposed to establish security policies and ensure that those policies are implemented. Yet the “TSA itself is the operator of the largest com ponent of airport security-passenger and baggage screening. [Its] self-regulation is inherently problematic.” Poole cited a USA Today investigation that found that TSA screeners at Chicago O’Hare and LAX “missed three times as many hidden bomb materials as did privately contracted screeners at San Francisco.” It’s no surprise that the Government Accountability Office found that TSA studies comparing its performance with those of private con tractors were highly flawed. Another problem is that because the TSA itself is doing screenings airports are not “having a unified approach to security.” Divided responsibility almost guarantees security flaws and problems."
I often used to comment in defence economics classes that if you wanted to find the most expensive way to do anything, get the government or its agencies to do it.
This was well illustrated by a Commanding Officer of a famous RAF station for pilot and engineering training at a formal dinner I attended.  He pointed to a wall in the Officers’ Mess between the reception area, where we had assembled for drinks, and the dining room next door.    He wanted to open a double doorway there to save everybody and guests returning to the corridor to enter the dining room to take their places at the tables for dinners.  He had asked an experienced local builder, who was undertaking a contract for building work elsewhere on the base, how much roughly he would charge to undertake a double-door job opening into the large dinning room.   The builder surveyed the wall for the proposed doorway, particularly the nature of the wall (he knew about old MOD property), and quoted a figure of around £14,000 to £20,000 (it was in the 1980s), and about week to complete the work.
Then the Government’s Property Services Agency stepped in, which monopolized all Ministry of Defence work, and insisted that they did the work, which sometimes involved sub-contracting to approved firms like the builder who had quoted the lower price.  However, the PSA price had shot up to £38,000 for the fitted doorway.   PSA was also notorious for the time it took to complete its contracts – a month or two at least, even for a small job.
Enough said?
To Adam Smith’s lack of surprise, we could add that he might also have commented on the additional, and perfectly normal, costs of 18th-century corruption in the award of government contracts.  Such a scale of corruption was unknown in the mid-8os, though one heard gossip about small-scale fiddles now and again.


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