Privatization
Price of Paradise · Hawaii Public Radio · aired 1994-09-18
Guests: George Mason (Editorial Page Editor, Pacific Business News); Robbie Alm (former Director, Hawaii Department of Commerce and Consumer Affairs)
Duration: 0:34:30

[00:00:00] Randall Roth: is Randy Roth, host of the Price of Paradise radio show. Is government inefficient and too big? If you answered yes, you're not alone. Increasingly, people are demanding that governments everywhere do more with less. Nationally, Vice President Gore intends to save billions of dollars by, quote, reinventing government. Here in Hawaii, every candidate for every office seems to be in favor of streamlining bureaucratic process. Evidently, they believe the public feels entitled to a bigger bang for each buck being paid in taxes. But how do you do this? And if it's easy to do, why hasn't it been done before? With me in the studio to discuss these issues are two former bureaucrats.
[00:00:40] Randall Roth: George Mason is best known as editorial page editor of the Pacific Business News and a regular critic of government, but well over 30 years ago he was the director of economic development for the state of Hawaii. Since then, in addition to founding and building the Pacific Business News into a highly successful weekly newspaper, he's been the recipient of 23 awards, including media man of the year, advertising man of the year, and small business person of the year. Robbie Om currently is vice president of First Hawaiian Bank, but for 6 years was governor Wae's director of commerce and consumer affairs.
[00:01:14] Randall Roth: He too has received a number of honors, including public administrator of the year and the freedom of information award. George, Robbie, welcome to the Price of Paradise radio show.
[00:01:25] George Mason: Thank you.
[00:01:26] Randall Roth: Well, I guess the the question that goes to the heart of all this is, is government inherently inefficient? Is there something about government that prevents it from being efficient? Uh oh, I'm getting a finger pointed at Robbie Om. What do you think, Robbie?
[00:01:40] Robbie Alm: In some ways, yes. We don't design government primarily around efficiency standards. We design it to meet certain social needs. We, um, design around it processes that were initially at least put in place to to make sure that everything was conducted in a fair manner. the civil service system, procurement codes, there are variety of of of processes we lay over government which have nothing to do with efficiency which more often have to do with preventing uh abuse of power, misuse of of office, um a variety of other purposes beyond efficiency. It's not uh government is not measured on profitability, on performance in the marketplace.
[00:02:29] Randall Roth: Well well then is it is it impossible to achieve efficiency because it runs counter to all of these other things that are the basis for the formation of government?
[00:02:37] Robbie Alm: No, I don't think it's at all impossible to um to move towards a much more efficient government. I think we have to do that. I'm just saying that as we look at it, um I think we often get into apples and oranges comparisons. uh if if we want government to be efficient, we may have to take a risk or two. We may have to unhitch ourselves from from some of the systems we we put in place. I remember during the uh during the debate over the procurement code, Center Matsuura made the the comment repeatedly, he wasn't sure we needed a new code at all.
[00:03:09] Robbie Alm: uh that maybe the old code was just just fine, it just depended on who was who was um operating the code.
[00:03:15] Randall Roth: We just needed needed people uh to change rather than the system to change?
[00:03:18] Robbie Alm: And without getting into to that particular thing, I think that, you know, there were a lot of us who looked at the new procurement code and wondered if we weren't just creating another layer of bureaucracy. uh when what we really needed was to create a level of entrepreneurial behavior uh that would be more like the private sector in in the sense of looking for opportunities to be efficient, to save the public money, to do things at a at a at the most cost effective basis, but then we'd be taking a risk.
[00:03:47] Randall Roth: Well, something like the procurement code, which I think was generally recognized as as a good thing when it was enacted last year, you're telling me that's at the heart of this inefficiency problem.
[00:03:57] Robbie Alm: Well I'm just saying we've got trade-offs and one of the things we've done repeatedly is trade off efficiency um at least partial efficiency in the name of other kinds of social or political needs.
[00:04:09] Randall Roth: What do you think, George?
[00:04:10] George Mason: Yeah, well let me just add to that. Um government is inefficient because it has no incentive to be anything else. Um in in the private sector, if you eliminated the profit motive, business would be just as inefficient. Uh there there is no incentive in government because you get promoted depending upon how many people you supervise, how big you can get the agency, uh how complicated things can become, uh you take forever to do something because it guarantees longevity on the job. It it's just inherently inefficient and if you want to uh introduce a little entrepreneurship, you're going to have to have some public private partnerships in certain areas.
[00:04:57] Randall Roth: Mhm. So you're saying it's it's inherently inefficient because it has the wrong incentives. How would you how would you
[00:05:03] George Mason: There's no incentive.
[00:05:05] Randall Roth: No incentive. Could you build in the right incentive or you're saying, nope, can't do it, you simply have to cut it off and give it to the private sector?
[00:05:14] George Mason: You don't necessarily have to in every case give it to the private sector, you can work with the private sector and put certain uh operations um let me just give you an example. Why is the tax department so far behind in collecting tax liens? Hundreds of millions of dollars of uncollected money out there and yet they can't turn it over to a private collector because of some glitch in the uh $4,000 uh bidding law or whatever, they have to put it out to bid and uh
[00:05:46] Randall Roth: Well tell me again, why would a private collection company be able to collect it more efficiently than government? If government contracts it out, then they've got to pay a fee.
[00:05:56] George Mason: Oh, absolutely. And in private business, I used to turn accounts over to a collection agency because it was cheaper to give them 20 or 25% of what they collected than for us to pursue it for a year or two because they could collect it in 60 days. In other words, you subcontract out, when you're in business you subcontract out any work you possibly can in the name of efficiency and getting it done and government needs to learn how to subcontract out certain work that can better be done uh by the private sector than it can do by itself. It doesn't have any incentive, a private collection agency has lots of incentives.
[00:06:36] Randall Roth: Robbie, what do you think about that?
[00:06:38] Robbie Alm: Yeah, I I think George is George is raising a real good point which is we tend to look at this as sort of do we take a whole a whole job and privatize it? Do we privatize the tax department? Obviously we don't. You know and I think part of the argument has been that we've tended to say, okay, if if we're going to privatize that means government stops doing this function. And I would rather we far more approach it in the sense of let's figure out what aspects of a job government doesn't need to do anymore.
[00:07:08] Robbie Alm: What's happened over the years is we've given government a job and and and then government basically takes over all aspects of that job. Instead of sitting there and saying, okay, what's the core that government needs to do? What's the responsibility we want in government's hands and what portions of that task doesn't government need to do? The moment it stops doing it, it effectively privatizes it. You know, and that I think we need to be a lot more creative in the way we go about this than just simply saying, who what, you know, what public servant are we going to unemploy today?
[00:07:41] Randall Roth: Yeah. And I think, George, you wrote an an editorial not long ago where you pointed out that that the Department of Taxation hired a bunch of permanent people in order to eat into the backlog and you're saying once the backlog is gone, if they do get it out of the way, then they're left with those permanent people to do something.
[00:07:58] George Mason: Oh absolutely. I can cite many examples, I'm sure Robbie can of departments uh that have little bureaus that were built up to accomplish a certain purpose and once that purpose was accomplished, uh the employees stayed. Uh incidentally in the city government uh darn good example is the fact that all those people hired to to work on rail transit are still there.
[00:08:22] Randall Roth: Well, who's going to fight this effort at efficiency? We're we're all taxpayers and and I think for that reason would like a government to be as efficient as possible and still accomplish all of those other things, Robbie, that you were describing earlier that we want government to accomplish, who would fight these efforts?
[00:08:38] Robbie Alm: Well, I think because the way the the debate is focused, the principal uh fight comes from from those in government itself. I you know, too often the the the the argument is posed in in very negative terms that somehow government workers are themselves inefficient or that they're simply trying to to preserve simple easy jobs, that they're lazy, that they couldn't survive in the in the private sector. It's a very negative focus.
[00:09:08] Randall Roth: I must tell you I had a smile on my face when I described George Mason as a former bureaucrat because I think most people around town think of George as being uh highly successful businessman and if only people like George were in government, then everything would be great. And uh George uh you were in government for a while.
[00:09:26] George Mason: I was in government. It was very frustrating.
[00:09:29] Randall Roth: But the system, the system was wrong, not the people, and I think that's what you're saying, Robbie. It's not about
[00:09:34] Robbie Alm: And what I'm suggesting is if we're really going to change it we need to enlist those people in the cause. Most government workers are frustrated too. Right. They're frustrated by the bureaucracy, they're frustrated by what their lives are like. If we could make government more efficient, they'd be very happy. You know, I think we just need to get away from focusing it on a government not government basis and how do we have good efficient government, which I think we can enlist everybody in favor of.
[00:10:00] Randall Roth: In case you joined us late, you're listening to the Price of Paradise radio show. I'm Randy Roth, and my guests are Pacific Business News editorial page editor George Mason and former director of the State Department of Commerce and Consumer Affairs, Robbie Om. We're live and your phone calls are welcome. Just call 955-8821. Neighbor Islanders are invited to call collect. The number again, 955-8821. I'm looking at an article that appeared in the newspaper a couple weeks ago, and it's reporting on a a candidate forum that had been held the night before.
[00:10:35] Randall Roth: One of the things in this article is a statement that Jeremy Harris, who is the new mayor of Honolulu, said that he hopes, quote, to eventually privatize 75% of the county's work. George Mason, it sounds like you've got a friend in uh the mayor's slot right now.
[00:10:56] George Mason: Well, let's not put it that way. But let me tell you, I think that that is an extreme goal. Uh certainly, it isn't going to be done in a couple of years, maybe not even seven or eight or ten.
[00:11:08] Randall Roth: Is is it a worthy goal or is it something
[00:11:10] George Mason: Oh, absolute Of course it's a worthy goal. Absolutely. Uh Oahu has uh privatized uh one landfill in Waimano and this garbage energy plant at Campbell Industrial Park has been privatized. That's about the extent of it. I would immediately move to privatize the um uh rubbish pickup.
[00:11:34] Randall Roth: Okay. I was about to say, why do it when people seem to be so satisfied with the the service? You're saying whether it's being done well or not isn't the issue. It's not being done efficiently?
[00:11:46] George Mason: No, yeah, it's costing us more than it needs to.
[00:11:48] Randall Roth: How do we know that?
[00:11:49] George Mason: Well, I know that because uh the city could not pick up the rubbish in my office building uh for what a private company uh picks it up for, and that private company makes a nice profit.
[00:12:02] Randall Roth: Robbie, what about uh schools? I I'm reading in the newspaper that that there's discussion of contracting out with the Edison Project or some other private company, uh as many of of six of the schools, let some private company run them. And there's also a lot of discussion of of vouchers, which as I understand it is a form of privatization. You let people use vouchers provided by government to buy the services provided by the private sector. Um is schools one of these areas where we need government to be doing this, or can it be privatized?
[00:12:38] Robbie Alm: I think every effort that aims at at looking at what we can get at, you know, by some combination is is probably probably worth looking at. I I guess for me personally, I have a little trouble with the schools. I I worry that that the schools are are an area where we as a society are are really putting a a great deal of of our commitment to a next generation, um, you know, in the hands of a school system that needs to perform at more than just levels of efficiency.
[00:13:18] Robbie Alm: It needs to perform with with a very large eye on on issues of quality, of of of intangibles about what it means to be a member of this society. I you know, I if the public school system gets measured on the cost-effectiveness of each step taken in there, I would worry we'd we'd create a a monster that that doesn't deserve that place in the equation.
[00:13:44] Randall Roth: George Mason?
[00:13:45] George Mason: Well, to add to that, I'll tell you what uh has been done in other areas on the school system, the voucher system can work if people want to make it work, because what it does is you, let's say the voucher is worth $5,500. You can send your child to Punahou or Sacred Hearts or wherever you want and and apply just $5,500 to whatever the tuition is, or you can go to a public school in Kaimuki and say, here's my voucher, and uh that school will say, heck, we need more vouchers, so we better improve, and we better get on a par with all the competition.
[00:14:26] George Mason: Mhm. And and they will be motivated, because otherwise their funding just drops uh uh drastically, and uh that's the kind of competition that you can put into the public sector. You can still have a public school system, but you got to motivate them. And vouchers is one way to motivate them.
[00:14:43] Randall Roth: So you're saying that a school has to do well on the intangibles and on the quality level in order for the parents to choose that school and give that voucher to that school. Right, Robbie?
[00:14:53] Robbie Alm: I agree with all of that, but I still come back to, you know, whether that's in fact going to work except at at a top end. You know, at I don't doubt that that could work at at certain schools, certainly would work with the private schools, but that would work with certain of the public schools. But we're maintaining a very large um very democratic, very open public school system that stretches across the state and into rural areas into um to the widest variety of of of neighborhoods.
[00:15:36] Robbie Alm: That one of the things that we prided ourselves on is that there's a there's a basic fairness to Hawaii system because of that statewide nature of it, and sure there have been variations in in the level of funding and the support for schools, but that there was a certain basic [unintelligible — audio glitch] there everywhere, and there was something democratic about that.
[00:16:01] Randall Roth: Speaking of statewide concerns, we have a couple callers from neighbor islands. First, David from the Big Island. David, you're on the air.
[00:16:08] Speaker 1: Yeah, good morning. Um another facet of government inefficiency has to do with budgeting. Um I chaired a uh department over in the mainland for a while and the way the budget was worked, uh how much money you spent this year was the cap on how much you would be budgeted next year.
[00:16:26] Randall Roth: Let my let my guest say a couple of things about that David, but stay on the line, I want to come back to you. Robbie?
[00:16:31] Robbie Alm: Bingo. I mean, that's, you know, I if you want a a cause for you know, a waste of a lot, our budgeting system is is right on the money. If you actually have the temerity to save money, it's going to cost you in future years. So that's why the rash of fourth quarter spending, that's why the rash of of finding uses for money. If every department knew that if it saved 25% or 10% at the end of the year, it could carry over 5% of that into the new year, you'd find people saving like crazy.
[00:17:05] George Mason: I have I have a true life example. At the end of my first two years in the territorial government, I went before the legislature and I proudly announced I have saved $80,000 out of a $380,000 budget and I'm returning that to the treasury. I got hell for that. Let me tell you, every legislator just said, don't you ever do that again, and my budget got cut by about 30% uh for the following year.
[00:17:37] Randall Roth: So your incentive, now you had an incentive, right? Your incentive was to spend everything. The incentive was to spend, and that's wrong and in business, your incentive is to cut costs. David, you've got a couple of believers here in the studio. Why don't you go ahead.
[00:17:51] Speaker 1: Yeah, I guess I put my finger right on the real nerve there.
[00:17:54] Randall Roth: You sure did. Go ahead.
[00:17:56] Speaker 1: I had a very small department. Our our first year budget was $2,000. And I think I spent $75 the first year and you know, the next year, that's all they would allow me. You know? If I had an expense, forget it.
[00:18:09] Randall Roth: So uh, yeah, let let let the person if they spend less in their budget, let them have a little extra next year if they need it, you know? And again, if they don't spend it, hey, fine.
[00:18:20] George Mason: At least say thank you.
[00:18:22] Randall Roth: Great, great point David, we appreciate your call.
[00:18:25] Speaker 1: Bye.
[00:18:26] Randall Roth: We have Orest from Maui and I'm probably mispronouncing your name. How do how do you pronounce it?
[00:18:32] Speaker 2: Oresti.
[00:18:33] Randall Roth: Oresti, you're on the air.
[00:18:34] Speaker 2: Thanks. I was calling about the um privatization of uh government services. And uh sometimes this is all right, but sometimes it bothers me when I notice that the people that are replacing the state workers are paid a lot less, have much worse benefits, and actually what what I'm seeing is the McDonaldization.
[00:19:00] Speaker 1: enough a of a certain type of work and um I would much rather have uh everybody well-paid.
[00:19:10] Speaker 2: Yeah. Well, let's see what George Mason says about that and we'll come back to you in just a moment.
[00:19:14] Speaker 1: Okay.
[00:19:15] Speaker 2: George, the concern is that uh high-paid people with lots of benefits are being replaced by low-paid people with few benefits. Um, is is that what privatization is all about? Is that where the efficiencies come from?
[00:19:29] George Mason: No, no. That's not where the efficiencies come from. The efficiencies uh come from incentive. Uh in the private sector, if you do a lousy job, you get fired, okay? Uh in the public sector, you the process of firing an employee is so complex and so long-term that most department heads and managers say oh, the heck with it.
[00:19:53] Speaker 2: But they they bounce them to another department.
[00:19:55] George Mason: They bounce them to another department or whatever. But but you just can't fire somebody in government, like you can in the private sector, for being totally inefficient or being no good. Right. Um and managers uh have no real incentive in government. Managers have a heck of an incentive in the private sector to do a good job. Look what's been happening to all the big companies uh around the nation. Uh they are downsizing and they're downsizing far more middle managers and supervisors than they are the rank and file.
[00:20:28] Speaker 2: But is is Arresti simply wrong when he says that rank and file workers end up making less after privatization?
[00:20:36] George Mason: No. That is not true. I'll give you a good example. Uh the landfill on the Big Island that is now in contention in the lawsuit with the uh uh public workers um United Public Workers Union. They have five people, not one of those rank and file workers out there moving shovels and dumps and everything, not one of them makes under 50,000 a year.
[00:21:03] George Mason: And the reason is that the company said, look, if you guys really want to make big money, we'll have to put you on overtime. Are you willing to work 50 to 52 hours a week and overtime, they said, heck yes. And and their pay rate is better than in government. Their benefits are better, maybe not all the benefits, but some of them. And and they're making big money. As a result, they have half the number of workers on the job as the government would have.
[00:21:39] Speaker 2: Let me see if Robbie Ohm agrees with all of that.
[00:21:43] Robbie Alm: I think it's far more mixed than that. I think there are a lot of areas in which the the group that's coming in is going to pay less. We have a very generous uh compensation for public employees in the state, particularly on the retirement side. You know, I'd be real surprised if most privatization efforts didn't, in fact, save on on uh on on employee on employee benefit costs in particular. So I think that some of the efficiency is going to achieve be achieved by less salary and benefit. Not in every case but in a number of cases.
[00:22:17] Speaker 2: Is is that a bad thing or is that simply bringing folks to to a market level of compensation that they're getting paid what what uh quote they're worth as opposed to an amount that's been artificially set by government.
[00:22:31] Robbie Alm: Well, I think it's more part of a trend. I mean a lot of businesses are doing that. They're subcontracting out. They're they're having other companies operate certain portions of their activities and very often those companies are paying less in benefits or or are are not are hiring a more um mobile workforce, someone that stays less with a company for a long haul and therefore they're not probably you know, going to ever pay them nearly as much. Uh you know, and in in some ways I think that the the the task is to figure out what to what to do with the talent that we have on board right now.
[00:23:10] Robbie Alm: I mean sit there trying to figure out how to how to take away um jobs that that government currently does. I think we should also focus in all of this on how to make use of the talent that's already on board. If, in fact, some of the things that government are doing are are inefficient, then we're wasting the investment we make with our tax dollars on that inefficient operation. And, you know, I think that that whatever aspects of it we privatize, we're also going to have a substantial amount that's still with government. We ought to be focusing on how to make that much more efficient uh so that we, in fact, get something for our our tax investment.
[00:23:50] Speaker 2: Arresti, are you still there?
[00:23:51] Speaker 3: Yeah.
[00:23:52] Speaker 2: What do you think of all of that?
[00:23:54] Speaker 3: Well, um of course, I agree with the latter guy that it's definitely mixed and uh what the other guy said about it being so easy to fire somebody, uh yeah, that's that's a huge problem that it's too easy to fire people and you hire somebody one one day, you don't like them the next and you fire them, and then
[00:24:15] Speaker 2: So you like a a system that makes it very difficult to fire people.
[00:24:19] Speaker 3: Um, I think I think it that it should be made more difficult, yeah. Make people think twice before they tell somebody they'll provide him with an income and a living and check every month for Christmas.
[00:24:31] Speaker 2: Okay. Well, you have to think twice in the private sector before firing people because of all the laws, discrimination, etc. Uh there are a lot of lawsuits uh against private businesses.
[00:24:43] Speaker 3: Well, you can't change your mind every 10 seconds on me. No, no. You know, either agree agree with me or say you you know, I mean come on.
[00:24:54] Speaker 2: Arresti, I appreciate your call.
[00:24:56] Speaker 3: Thank you.
[00:24:57] Speaker 2: You're listening to the Price of Paradise Radio Show. Today's topic is privatization. My guests in the studio are George Mason and Robbie Ohm. We're live and the phone lines are open. Just call 955-8821. Robbie, I know you were a member of this interim committee to redesign government here in Hawaii. And as I understand it, that was the local version of Vice President Gore's reinventing government effort. What happened to the Committee to Redesign Government?
[00:25:27] Robbie Alm: Well, I I think it's um mission far exceeded its its capabilities as as a group. I think that uh
[00:25:36] Speaker 2: Does it still exist?
[00:25:37] Robbie Alm: No. Uh I think it was a, you know, one of those end of the legislature attempts to try to address a a felt need for for fixing government, uh that didn't have enough enough there to really do anything. It's it set up a small group with with no staffing and and no funding and no uh
[00:25:57] Speaker 2: So it wasn't a serious effort?
[00:26:00] Robbie Alm: I don't think I think it was meant seriously. The problem is I don't think you can go about this at the last minute without, you know, doing some real careful thought as to what you want to set up and what you want to have it do, or alternatively, you have to have some group, either the administration or some private sector group, essentially make this a big commitment and assign resources to it. I mean that, you know, the Gore effort has staff, um, the Grace Commission had staff, the Hoover Commission had staff. I mean, if you look at most of the efforts, which you remember over the years as a serious look at government, you know, they didn't set up a permanent bureaucracy, but they did have some people whose whose job for six months or a year or two years was to really study this issue and go into depth and not be reliant on reports from others and and material turned over to them from from uh from existing sources and and and just sort of put it together uh and that's really all that group had time to do.
[00:27:00] Speaker 2: Let let's pretend we have our own little committee to redesign government right here in the studio. What's the first thing Let's start with George, then go to Robbie, what's the first thing George that you would do? If we were here redesigning government in Hawaii, the first thing you would do?
[00:27:16] George Mason: First thing I would do would be to ask, why are we doing this?
[00:27:21] Speaker 2: Why are we redesigning?
[00:27:22] George Mason: No, why are we doing anything in a department of government? And and some people will say, we don't know, it's always been done this way.
[00:27:29] Speaker 2: Oh, why is government doing it as opposed to the private sector doing it?
[00:27:33] George Mason: Well, no, just why is government even doing it. There are a lot of things government could could get rid of and not do and nobody would miss it, okay? That would be that would be the first penetrating question. You know, Ted Gabler, who is uh the apostle of Reinventing Government, spoke at a conference in California I attended last February on privatization, it was a three-day session. And Gabler said, and I I made a note of this. He said, in government, we have good people practicing bad systems.
[00:28:05] George Mason: He said, the job of government is to steer, not row the boat. Delivering services is rowing and government is not good at rowing. I mean, these are So the first thing government does is to kind of step back and say, why are we doing this? And if it's something that we should do, then that sets the direction. But then the question becomes, should we do it ourselves or contract it out?
[00:28:28] George Mason: Right, and and uh uh Steve Goldsmith, the mayor of Indianapolis uh challenged all of his uh people department heads, managers and so on, he says, why are we doing it? And then he says, how much is it costing? And nobody could tell him what something was costing, because in government you don't amortize the cost of the building you occupy, the vehicles uh you you have, the equipment, the computers, etc., you pay cash for them, you floated a bond and that's to the end of it.
[00:29:01] Speaker 2: You're saying in your business, you know what things costs. In government, even when you were in government, didn't know what everything cost. Didn't didn't know what it cost. Okay. Robbie, what's the first thing you would do if you were in in on this committee to redesign government and you didn't have to go through the important time-consuming process of building a consensus, what's the first thing you would do?
[00:29:22] Robbie Alm: In a similar vein, I I I the first thing I would do is ask why government needs to do any particular function. You know, not is it a good idea, not does it have a constituency, not do we like government doing this, but what does government need to do. You know, And I I'm hearing both of you say this and it makes so much sense, and I'm wondering why hasn't it been done all along, Robbie?
[00:29:39] Speaker 1: You know, I I'm hearing both of you say this, and it makes so much sense, and I'm wondering why hasn't it been done all along, Robbie?
[00:29:39] [music outro 291 s]