The Wrong Question About Business and Government

Don't ask how much the private sector should be involved in government, but how it should be involved.
by | April 28, 2010
 

Placard-waving protesters and pontificating scholars alike tend to fixate on what turns out to be a rather unproductive question: How involved should the private sector be in the pursuit of public missions? Should government go it alone, undefiled by profit-hungry businesses and unelected nonprofits? Or should it embrace private partners in order to ramp up the scale, productivity and legitimacy of governmental undertakings?

Americans love to argue about whether private roles in public missions should be sweeping or circumscribed. But much like the related, equally entertaining and similarly sterile debate over how big a share of the economy government should claim, noisy squabbling over how much to involve private players masks the reality of limited and gradual change.

Just as there are only minor wobbles from decade to decade in government's share of the gross domestic product, so too the scale of business and non-profit involvement in government's work is relatively steady -- not quite a constant but a glacially slow-moving variable. In 1970 the public sector as a whole devoted roughly 40 percent of its outlays to payroll for governmental employees. After four decades of furious campaigns to outsource, partner and in other ways delegate, that share has plummeted to ... roughly 30 percent. And even that decline largely reflects the growing weight of Medicare and Medicaid -- which have always been dominated by private delivery -- rather than any greater propensity to turn to private options for particular tasks.

So asking "how much" isn't that useful a question when it comes to private-sector involvement. Whether the temper of the times tilts toward libertarian or collectivist -- within the tightly-drawn boundaries that American political culture permits, of course -- it's a safe bet that the private sector will play about the same-sized role as it did a year or a decade ago, plus or minus a bit.

The right question concerns not "how much" but rather "how" the private sector should be involved. There is a vast, variegated and under-examined menu of options. For-profits can carry out cleanly-specified tasks for an agreed-upon fee, or enter into messier forms of partnership with shifting goals and shared control. Community organizations can parlay grants into social services. Big nonprofits (the Salvation Army, Habitat for Humanity, major hospitals, universities and research institutions) take on pieces of the public agenda on various terms, from contracts to grants to pure charity. A useful way of parsing the sprawling range of alternative models is according to the allocation of discretion. At one extreme, government monopolizes discretion and the private players do just what they're told and paid to do. At the other extreme, private organizations pursue their own definition of public value, with government's job pretty much limited to setting the rules for tax preferences.

Getting the right answer to this question of "how," factors enormously into the efficiency and accountability of private roles. Fruitful and fascinating searches for the right model are happening all around us. At the insistence of the Obama administration, for instance, Congress recently switched federal student lending from an arrangement that gave private players wide discretion and rich profits to a system where contractors just process the checks. High-decibel debates about "direct" government lending obscure the fact that most of the actual work is done by the private sector under either model. In space transportation, on the other hand, NASA is poised to shift in the opposite direction -- from a model where spacecraft suppliers simply fill government's orders to one where private partners have more discretion, more risk and potentially much more reward.

The most appropriate model depends on the details of the mission, the context, the caliber of willing private participants and the capabilities of public managers. There is no single right answer for "how" to involve the private sector any more than there is a single answer for "how much" to involve it. But reaching the right answer, case by case, requires asking the right question.

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