Government Privatization: There’s Gold in Them Thar Bills

Scott Klug, clean cut and earnest, used to be a reporter for KING-TV in Seattle. He liked to investigate politicians. You would not have suspected that he would wind up in Congress himself one day, but that is what happened. Having returned home to Madison ,Wisconsin, Klug got elected as a Republican to the House of Representatives. Now in Washington, D.C.–still clean cut and earnest–he focuses a lot on cutting costs and privatizing government programs. And he is making some progress.

The Republican House majority, including Klug and his Washington State colleagues, deserves credit for reducing spending growth and making a balanced budget by 2002 a realistic goal. It wouldn’t have been possible without the Republicans’ sometimes stormy insistence, and if they lose power this fall, that goal surely will erode. But they got in political trouble when their cuts hit some highly visible services with broad constituencies. Everybody wants Congress to combat “waste, fraud and abuse,” but one voter’s idea of waste is another’s idea of a vital service.

Similarly, almost everybody would like a tax cut, as Republicans propose. It is, or ought to be, common knowledge that when federal, state and local taxes are combined, the American family is more heavily taxed than ever before. But, how do you pay for a broad cut? There will be a supply side boost to revenues when marginal tax rates are cut, but it will cover only about a quarter of the tab.

We clearly need greater efficiencies in government. Klug believes that government monopolies, lacking the discipline of the free market, raise costs directly and–by not paying taxes–indirectly, too. Privatization, while not a panacea, can lower government costs and still improve services.

Privatization was a subject of fashionable discussion in the 1980s, but few actual conversions were undertaken. Selling off Conrail, the government-subsidized freight railroad that had been picked up when Penn Central, New York Central and several other lines failed, was one of the stellar successes. That privatization was led by Ronald Reagan’s Secretary of Transportation, Elizabeth Dole, and turned a multi-billion dollar public revenue eater into a multi-billion dollar tax contributor. (The Dole campaign should make more of this story.) Klug is now among those promoting the current proposal to privatize Amtrak passenger service.

Klug’s efforts led Speaker Gringrich last year to appoint him head of a House privatization task force that includes, among others, Rep. Jennifer Dunn of Bellevue, Washington. An initial effort was the abolition, privatization or partial privatization of some nine programs within the House of Representatives itself–from beauty and barber shops to food services and recording studios. As Gingrich recently noted on Meet the Press, the old House still had ice delivered twice daily to each Memberís office–80 years after invention of the refrigerator. Most of these in-House reforms are now completed, with expected ultimate savings to taxpayers of $44 million, a good example for the rest of government.

The Clinton Administration has made a few modest moves toward privatization, of course, such as agreeing with Congress to sell the Naval Petroleum Reserves (at an anticipated price of $1.6 billion). But Klug is skeptical of any serious or long term Clinton commitment. Dole is much more interested. Whoever is president, however, Klug has a long list of privatization targets. They involve sale or lease of assets, contracting out of services, functional conversion to the private sector and lifting legal barriers to privatization. For example:

Klug and his task force want to contract out the debt collection activities of the IRS. Citing a General Accounting Office report and a survey by the American Collectors Association, Klug foresees savings of over $10 billion.
$80 million could be saved by privatizing many activities of the Government Printing Office.
Money to build badly needed new prisons could be found by turning some operations over to private companies, which experience shows can construct and manage prisons for 20 % less than the government.
Contracting out government commercial-style services could save “as much as $9 billion a year.” Klug cites as examples the Department of Defense and the Veteranís Administration, which compete with the private sector in grocery distribution.
Privatizing management of federal loan programs could save $2 billion annually.

Some of the GOP proposals Klug is introducing will require more study and debate. For instance, he wants to move, though slowly, to sell off the electric power projects built in the ’30s and 40s. This would have been politically unimaginable several decades ago, but, as shown in a report this month by a bi-partisan task force of governors from the four Northwest states, even the huge and venerable Bonneville Power Administration (BPA) is coming under increased consideration for privatization, at least for its power transmission system. The power industry is moving into greater competition these days and a co-existent government monopoly makes less and less sense. Klug wisely suggests privatization ìfrom least to most complexîpower marketing administrations, starting with Southeastern Power Administration, and reviewing Western Area Power Administration and BPA last.

Perhaps it is remarkable that anyone is even able to talk about such matters these days. Barry Goldwater’s proposal in 1964 to sell the Tennessee Valley Authority (TVA) helped defeat him. But few attack Klug in 1996 for wanting to bring at least the non-power programs of TVA into the private, tax-paying sector, at a savings of $140 million a year, and he bravely asks why regulated private ownership of TVA power would not also make sense for citizen rate-payers in todayís environment–as well as earning $28 billion for the federal treasury.

There, indeed, are few sacred cows in the Wisconsin representative’s budget pasture. He even dares to mention the Postal Service. Barry Goldwater himself didn’t raise such an issue. If he had, it would have been thought a joke. But that was before private overnight mail delivery, faxes and e-mail. Now Klug’s suggestion that the Post Office evolve into an employee-owned corporation doesn’t strike most people as either ridiculous or extreme. More and more, it sounds like common sense.

Bruce Chapman

Cofounder and Chairman of the Board of Discovery Institute
Bruce Chapman has had a long career in American politics and public policy at the city, state, national, and international levels. Elected to the Seattle City Council and as Washington State's Secretary of State, he also served in several leadership posts in the Reagan administration, including ambassador. In 1991, he founded the public policy think tank Discovery Institute, where he currently serves as Chairman of the Board and director of the Chapman Center on Citizen Leadership.