Monday, August 21, 2006


The next time somebody tells me how private industry is more cost-efficient than the public sector I'm going to spit in their face. Oh, I've always called them blind, but I've had to point out in the past that the reason for APPARENT better efficiency is workload requirements we put on government services. Add these workload requirements to private industry and they get worse than government returns.

Now, though, I've got a rock-solid point of comparison. The IRS is getting ready to outsource collection of debts under $25,000. Three private businesses have won bids to do the collecting. The New York Times claims the IRS reports it costs $0.03 (yes, three cents) per dollar collected to pursue theses. The three winners - allegedly low-cost bids - are charging $0.23 per dollar collected.

So, we taxpayers are going to get less return for our dollar? Private industry is almost 8 times less efficient? Bah.

This is even before we get into the question of whether private industry tax collectors are a good idea - an issue popping around several blogs right now.


Anonymous John S. said...

Private industry is almost 8 times less efficient?

While I agree with the overall thrust of your argument, I disagree with your categorizing private industry as 'less efficient'.

It's really a an issue of motives and goals. The goal of private industry is to keep profits up, whereas the goal of the public sector is to keep costs down. When coupled with the fact that private industry is motivated by making money while the public sector is motivated by saving taxpayers money, it is no surprise that we get a service from the private sector that costs taxpayers 8 times more because it makes those companies some very nice profits.

It may be somewhat semantical, but I think it's an important distinction.

8/25/2006 7:35 PM  
Blogger Kirk said...

No, in this case I can stand by my number.

It costs the taxpayer eight times as much to get one dollar (gross revenue) collected using private industry instead of the IRS. Eight times as expensive is eight times less efficient.

Yes, you can reinterpret the number. The government's collection section has a net margin that's 25% larger than that of the private industry. That's still a significant value.

The mistake - semantic or otherwise - you're making is to focus on the business instead of the customer for determining motives and goals. The customer is the government. The company makes a nice profit AT THE GOVERNMENT'S EXPENSE.

Of course, you have an assumption that's not been addressed, but which I regret to tell you is incorrect. You seem to believe that the private industry will collect a greater proportion of outstanding debts. An amusing fact is that the IRS gets almost all outstanding debts it pursues. They could collect more if they a) had more agents and b) didn't have quotas forcing them to ignore high-payoff debts to pursue low-payoff debts.

Nope. This is a case where the government is more efficient from the point of view of the customer, and it'd be more powerful if it were unleashed. 1/8th as expensive per dollar collected.

8/25/2006 9:51 PM  

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