Civilian Government Privatisation

1. Civilian Government Privatisation • Discussion here is outsourcing government services, not asset sales or SOEs • Aim is to retain the organisation’s central mission, but deliver it more effectively • Can be very effective in certain circumstances, focus here is on potential problems

2. Lack of Evidence • There is not unequivocal evidence per se that privatisation results in greater efficiency. • Perception of benefit comes from the perception that the private sector is more effective. • Cost economy of privatisation decisions rarely evaluated after the fact.

3. Why so Little Data? • Methods used to calculate savings may be inappropriate or inaccurate. • Significant costs, such as transaction costs (i.e. contract monitoring), are largely unknown. • Government agencies often have multiple and complex goals, not just fiscal efficiency.

4. Costs and Benefits • Benefit: efficiency and quality gains. • Savings: 9-14% or 10-30%, or averaging 9-14% while varying between 46.4% (for cleaning) and 80% (water meter reading) to minus 290% (for IT). • Do these actually exist? • Trend for more recent and more sophisticated studies to find lower savings. • Many of these figures exclude transition and monitoring costs or financial costs associated with the transition to outsourcing.

5. Conclusion • Efficiency gains are possible with outsourcing • Outsourcing can probably give some cost savings • But these are often small, need benefits above and beyond cost efficiency.

6. Implementation issues • Best when: • a service can easily be specified and monitored, • a competitive market of suppliers exists, • information symmetry exists between vendors. • Quality control and monitoring costs may negate savings. • If only a few suppliers exist then risk of monopolistic exploitation.

7. Private Prisons “… there is no evidence that private prisons will have a dramatic impact on how prisons operate. The promises of 20% savings in operational costs have simply not materialised.” “If nothing else, the private sector has shown that it is equally capable of mis-managing prisons as the public sector.” “…the sales division of the private sector may well be outstripping the production division.” James Austin and Garry Coventry, 'Extract from Emerging Issues on Privatized Prisons,' (San Francisco: National Council on Crime and Delinquency, 1999), pp.56-57.

8. Military Privatisation More likely to occur when: • International system is destabilised, • During a sudden surge in troop needs, • New (especially high-tech) weapon systems, • Can be self-perpetuating. Key requirements: • Social values and LOAC must allow private military operations, • Transport networks must exist. Is this occurring at present, or is this simply blip during restructuring of the international system?

9. Advantages to Using PMCs Strategic: • Deniability. • Surge capacity. • Easy way to give support (or token support) to allies. Economic: • Temporary specialists and reduced permanent force. • Avoid capital infrastructure costs. • Fixes costs for budgeting purposes. • Opens up the applicant pool worldwide. Political: • Appearance of no national interest.

10. Disadvantages for States Strategic: • State may be bypassed. • External pressure applied to the PMC (e.g. Aristide) • Risk of PMC quitting mid-contract or demanding higher pay. • Specialists may not be available when needed. • PR problems e.g. “dogs of war”. • Services are harder to test than goods • Poor decision making by contractor operating in an unfamiliar environment.

11. Disadvantages for States Economic: • Sudden increase of costs in an emergency. Political/Legal: • Accountability is reduced. • Not clear how PMCs fit into the LOAC and international law. • Liability issues. Morale • Perceptual link between spending and morale. • State military may see PMC interests as hostile to own. • Distrust of PMCs in the field.

12. When are PMCs successful? When contracted role is NOT: • excessively dangerous work, • an activity seen as morally questionable, • a core activity critical to the organisation, • too complex and too thoroughly integrated into other functions. Also, success if probably more likely when: • the project has the support of one’s own military, • the relevant expertise is already used widely elsewhere, outside the military. • the contractor knows ABCA systems

13. However… • Biggest problem may be PMC culture (secrecy, lack of accountability) and the way a commercial military organisation is perceived. • Third World, especially African states, are very hostile to PMCs.

14. Profit motive Business is in it for the money. • Profit above product safety, national security, etc, unless those factors bring profit. • Not necessarily a problem: a business that does a good job is more likely to have a customer again tomorrow. Businesses make mistakes. Businesses may choose themselves over their customers.

15. Conclusion: Roles for PMCs in NZ and the South Pacific? Impacts of US privatisation on NZ: • Contractors on the battlefield with NZDF. • Normalisation of contracting. • NZ losing personnel to overseas PMCs. Are PMCs useful in a SASO environment? Does Iraq tell us anything? Problems specifically for a smaller nation like NZ: • May not have weight in the market to demand fair treatment. • May not be the expected marketplace. • PMC probably does not work exclusively for NZ. The problem is one of relying on someone who may not have NZ’s best interests at heart.