Competitive

Government:
Injecting Competition
into Service Delivery
The issue is not about
public versus private. It's
competition versus
monopoly.
_____John Motiff, Chief
Secretary to
Massachusetts

Competition
Competition, in economics, conditions that are present in markets
where buyers and sellers interact to establish prices and exchange
goods and services. Economic competition is the means whereby the
self-interest of buyers and sellers acts to serve the needs of society as
well as those of individual market participants. Society is served when
the maximum number of goods is produced at the lowest possible
prices.

Public sectors are also competitive.

Why ?

How ?

What ?

Our Public Sector should learn to compete.

I.

Phoenix

Example: Phoenix

Phoenix decided to contract garbage collection out to the private

sector.
Both public and private company bidden and three times Public Works
lost in bidding.

Example: Phoenix

Strategies applied by public sector to compete.

Strategies were made. Jensen and his company converted 3 people to

1 person trucks, with mechanical arms that picked trash barrels.

Jensen and the managers also had taken elsewhere for an advantage.

The drivers of Jensen were told to redesign their routes and work
schedules, because drivers knew better that anyone else where
efficiencies lay.

Jensen and his company created quality circles called Partnership

teams and a labor- management Committee, to come up with other
improvements.

They also developed an organized new cost accounting system so they

would know exactly how much their services cost per household, per
month. Jensen also gave monthly and quarterly allowance to the best
drivers.

Strategies were successful

In 1984, a seven year came for the citys largest district.

Public Works was determined to win it and because of strategies

applied by Jensen and his colleagues, the private people morale went
up because now they could prove that they had it done well.

It won a second district then third. By 1988, it had won back all five
districts.

Over a ten year period, you see the cost for all other city programs
going up. Says Jensen.

Solid waste cost have gone down by 4.5 % a year , in real, inflation
adjusted dollars.

Phoenix has used competition not only in garbage collection but in landfill
operation, custodial services, parking lot management, street sweeping,
street repair, food and beverage concessions printing and security.

II. Advantages of Competition

The most obvious advantage of competition is
greater efficiency: more bang for the buck.
1. Competition forces public (or private) monopolies to
respond to the needs of their customers.
Example: The Postal Service is inefficient, and its also
unresponsive. In 1973 it tried, unsuccessfully, to suppress
the private courier serviceseven though it was not willing
to offer same day service itself. Competition has forced
drastic has forced drastic improvements in some areas, such
as express mail.
While the Federal Express and UPS have produced a
constant stream of innovation, earned millions of loyal
customers, and kept their prices steady, the Postal Service
struggled.
2. Competition rewards innovation; monopoly stifles it.
Example: Normal government practice discourages natural
selection. Rather than the survival of the helpful, we find the
survival of the already entrenched or the politically powerful.

Service decisions are made based on what was done last

year, which provider organizations have political clout. And
when budgets are cut, marginal programs are the first to go.
When service organizations are put into genuine
competition, everything changes.
Those who deliver poor services at high prices are gradually
eliminated, while those who deliver quality service at
reasonable prices grow larger.
3. Competition boost the pride and morale of public
employees.
They find that when they get into competitive situation,
they work a lot harder, but its far more exciting. They may
have to be pushed into it, but they discover that its much
more rewarding. And theres no question about when
theyre doing a good job. The world knows it, because
theyre winning in competition with others.

III. THE VARITIES OF COMPETITION

Public versus Private Competition
Private versus Private Competition
a). load shedding
b). Procurement
c).Contracting
Public versus Public competition

1). Public versus Private Competition.

In job training, competition between public agencies and private firms

has become relatively common. When Tennessee recently decided to
build three new prisons, it let a private firm handle one and the state
operate the others--- to see who could do it more cheaply.

 Beginning 1984, the federal Department of Transportation asked local

transit authorities that wanted federal funds to include private firms as
potential service providers.

2). Private versus Private Competition

A). Load shedding
B).Procurement
C). Contracting

Load shedding

Simplest method. Government turn services over to private sector out

form public sector.

George Latimer did this in St. Paul Minnesota.

But because public agencies give up direct control over service

producers, load shedding reduces governments ability to hold firms
accountable.

Procurement

Is another common avenue governments use to force private

companies to compete. Consider healthcare. Typically, public agencies
have to secure competitive bids for any procurement contract over a
set amount --- say,$5,000. Government spend hundreds of billions of
dollars this way every year---on health care, on highway construction,
on building maintenance.

Example, Medicaid for employees. The Medicaid is the Pacman of

states budgets,. Medicaid consumed 20 percent of Massachusetts
entire budget.

Prepaid plans such as health maintenance organizations (HMOs) tend

to be less expensive, because they compete fiercely on price. In
Massachusetts in 1989,for instance, traditional health insurance for

public employees cost almost $200 PER MONTH per employee , while
prepaid plans cost between 104 and $138.

Contracting

Contracting is another common method of injecting competition into

public services. Contracting is one of the most difficult methods a
public organization can choose, because writing and monitoring
contracts require so much skill. Many governments act as if their job is
done once they have signed a contract. But private contractors fail to
deliver what they promise-or worse, commit fraud.

To do it right, the cities often spend 20 % of the cost service on

contract management. They have to hire new people, with particular
expertise.We found out that a foreman who can supervise a crew does
not often have the skills to administer a contract,
so they created a position called contract monitor, and we recruited
people who had those skills.

Lowball bids are also common problem. Companies bid low to get the
first contract, assuming they can jack up the price later. After the
disastrous experience with one solid waste company, Phoenix learned
to weed out the low bidder. Quietly frankly, the low bid is usually not a
good bid Jensen says.

Finally there is a danger of fraud. As Paul Starr has written ,

Contracting is the locus classicus of the political pay off. During the
heyday of Boss Tweed, Contracting was often rife of corruption--- one
reason the progressives turned most service delivery over to public
bureaucracies.

The solution is fairly simple. Corruption is difficult when a

contracting system meets four criteria:

The biding is really competitive,

The competition is based on hard information about cost and quality of

performance;

The contractors are monitored carefully;

And relatively non political body is set up to perform these tasks.

Overall, most agencies appeared lease with their contractors performance. A

1989 survey by the National Commission for Employment Policy found that
72 % of local officials rated the quality of their contracted services very
favorable,10% slightly favorable,. The same study found that contracting
saved local governments 15 to 30 %.
3).Public versus Public competition.
Governments allow competition between their own organizations to
pursue the same results. As noted earlier ,public organizations in
competitive environments often perform just as well as private
organization.
Phoenix constantly compares the cost, efficiency, and effectiveness of
many city services with those offered by other cities. If you can draw
good comparisons, even if its not actual competition, that puts
pressure on, says City Auditor Jim Flanagan. Youll behave differently
if in fact the service you provide is looked at in that manner.

IV. Monopoly Vs Competition

Where theres
competition, you get better results, more cost-consciousness, and superior
service delivery.

Monopoly Vs Competition
When the progressives embraced service delivery by administrative
bureaucracies, they embraced monopoly.
To this day, we deride competition within government as waste and
duplication.

We assume that each neighborhood should have one school, each city
should have one police force, each region should have one organization
driving its buses and operating its commuter trains. When costs have to
be cut, we eliminate anything that smacks of duplication.
Yet we know that monopoly in the private sector protects inefficiency and
inhibits change.

IV. Competition is the key

Competition is the key
(It could not solve our problems)

it holds the key that will unlock the bureaucratic gridlock that
hamstrings so many public agencies.

This is not to endorse cutthroat competition, which can bring out the
bad and as well as good.

If the competition saves money only by skimping on wages or benefits, for

instance, governments should question its value.

VII. Cases regarding competition

There was a disastrous snowfall which had serious political
overtones. So to cut the long story short, they discovered that the
department responsible for cleaning the snow was working 50 % of
the time during this emergency. The rest of the time was
consumed by work breaks, coffer breaks, fueling breaks,
lunch breaks and wash-up breaks. New York City Department of
Sanitation was compared to private sector around the New York
area. It was found out or discovered that it cost private contractors
about $17 per ton to collect refuse, whereas it cost the city agency
$49 a ton almost three times as much.

VII. Creating competition for internal

Government services
Most of the examples listed above involve services provided to the public. But many
government agencies do not serve the public; they serve other government
agencies. They include printing, accounting, and purchasing offices,
telecommunications and data processing services, vehicles fleets, repair operations,
and dozens of others. Normally, the idea of having to compete never crosses their
employees minds. Even their customers rarely imagine going to outside
competitors: it never occurs to police chief to send his cars down to Jiffy Lube,
rather than the city maintenance shop.
When public managers do exercise such options, remarkable things began to
happen. E.S. Savas tells a story from Yugoslavia, of all places. It seems that the city
fathers of Ljubljana solicited bids for some city planning work not only from their
planning office but also from planning agency of Zagreb.
an American observer there at the time remarked that he had never seen
city employees anywhere work as hard as Ljubljanas city planners, who
wanted desperately to avoid the humiliation of having their own citys
work contracted out to their professional and regional rivals.

VIII. Public Education : A Case Study

PUBLIC EDUCATION: A CASE STUDY
Example:
America

America is the only major developed country in which there is no

competition within school system.

The American public school has a near monopoly, no performance

standards and little competition within the system or from the outside.

Example: America

Minnesota moved toward choice and competition in education.

Seven other states have followed Minnesotas lead, offering their

students the option of attending school.

Improvements/Innovations

1988, Drucker noted that his plans are changing.

He described Minnesota's decision to move toward choice and
competition.

In 1988, at least seven other states have followed Minnesotas lead,

offering their students the option of attending school in different
district :

Iowa, Arkansas, Ohio, Nebraska, Idaho, Utah and Massachusetts.

School Districts in Vermont and Maine were allowed to give students

vouchers to be use in private school.

California, Washington, and Colorado have opened up limited choice,

particularly for those in high school, And dozens of cities now offer choice,
including Rochester, New York; Montclair, New Jersey; Seattle; and San Jose.

Weakness of the choices.

Many of these systems give parents a choice of schools, but dont

really force schools to compete.

Inferior schools that fail to attract many students still get filled up with
the children of parents who arent paying attention.

There was no strong leadership that forced schools to compete.

Governor Tommy Thompson of Wisconsin explains:

Competition breeds accountability. Under the concept of parental
choice, schools will be held accountable for their students
performance. Schools providing a high quality education would flourish,
the same way as a business that improves its quality for its consumers.
Schools failing to meet the needs of their students would not be able to
compete, and in effect would go out of business.

Key factors that can contribute for the improvement of schools

Schools should have autonomy.

Schools that offer less quality education should be eliminated.

Leaders and legislature can urge schools to improve. (strong

leadership)

Competition

Parents should be informed about the quality of education that each

school offers.

What competition can do?

Only competition could motivate schools to improve because only

competition for customers creates real consequences and real pressure
if school fail.

Only competition forces principals and teachers constantly to make the

difficult changes necessary to meet the needs of their students.

IX. The Minnesota Experience

EXAMPLE: Minnesota

Had long prided itself on excellent public schools.

The first state to publicly debate the issue of competition in public

education.

The first state to institute state wide choice.

The story begins in the late 1970s when the Citizens League, a
combination of citizens organizations and think tank, created task
force to examine the results of court ordered desegregation.
Minnesota had long prided itself on its excellent public schools, But to
its surprise, the task force surfaced growing complaints.

Complaints

What people were most disturbed about was the declining quality of
their schools.

Curtis Johnson said that, we were just a little above average. Not bad
but nearly so deserving of the smugness that was so prevalent.

Minnesotas school were woefully inadequate.

Strategies

In response, Minnesota Business Partnership decided to commission its

own study.

The Minnesota Business Partnership together with Kolderie, Johnson,

Joe Nathan and former Republican governor Al Quie began a meeting
to formulate a strategy.

They convinced John Brandi, a state senator to give low-income

students vouchers they could use at any school, public or private.

But the bill failed.

Governor Perpich decided he needed and education reform agenda.

Perpich unveiled a proposal to let Minnesota children attend school in

any district they choose.

The bill was defeated. But it overlooked a separate clause in the

education bill, drafted by a legislator, which allowed juniors and seniors
to take their state education dollars to a college and finish high school
while earning individual credits.

Strategies were effective

Some enrolled in college; others took only one or two college
courses. But they and their parents loved it.
90% said they had learned more through the program than if
they had taken only high school courses.
80% of parents reported that their children spent more time
studying for their college courses than they did for high
school courses.

In 1986, the education establishment tried to gut the program.

But the cat was out of the bag. When its supporters organized
hearings, Johnson says, Parents swarmed the capitol.
They wouldnt let it happen. Student after student showed up
to say. This transformed my life. I was bored, I didnt care
about school, I wasnt even going to go to college, and this just
made me come alive.Parents showed up to say. I couldnt get
my kid to study, and I cant stop him.

Perpichs Second Bill

Perpich pushed to a 2nd bill allowing students aged 12 to 21 who were

not succeeding in one school to attend another.

The state advertised the program with the slogan: Students on the
verge of dropping out dont need a lecture, they need an alternative.
School of choice are far
(Parents do not want their children
to travel great distances just attend to school)

In 1991, Kolderie, Johnson and their allies pushed a bill through

legislature that allows groups of teachers to create new public schools.

Parents had limited choices unless new schools spring up in their area.

School choice alone wont change a closed system., Whats needed

is to open the system enterprising people who want to start innovative
new schools.
Minnesotas choice system has other limits.

It mandates competition between districts, but not competition within

each district.

It mandates choice, but not choices:

It creates pressure for schools to diversify their programs and teaching

styles, but does not mandate decentralization of authority that would
facilitate such changes.

It does not force school districts to open and close schools, as District 4
in East Harlem, schools that excel and attract more students rarely
grow or close themselves.

IX. The Equity Issue

The Equity Issue
Greatest objection to competition between schools is based
on a concern for equity.
Only the affluent could afford best education.
Others could not afford the best education and the education
market would segregate by income group.

Verne Johnson
Favors Controlled competition
Public policy must control what kind of competition takes
place.
Public Policy must assist those who dont have money.
His against to the deregulation of everything because those
with wealth will win and the rest will lose.
We cant have destructive competition
Public should be informed about the government has to set
up.

Public school systems must ensure also equity.

Parents must be informed about quality of each school.
Integration must be preserved.

 Poorly educated parents and students should be informed by

choice advocates about the quality of each school.
Students need free transportation.
Public Schools Choice fail if :
(Competition is useless)
The parents are not well informed about the quality that the
choices can offer to the students.
Students will not be guided properly as to where he should
enroll to excel in his/her interests.
If students lack financial resources.
The Old Educational System

Students with financial resources flee to private schools or to the

suburbs, while those without remained trapped.

Choice advocates in Minnesota and East Harlem argued that their

approach has exactly the opposite effect.

Competition forces failing school to improve or forces the district to

change their management.

Verne Johnson said , we are not really working for 2 % or 5% but we

are working for 95% who are still there, to energize and revitalize the
system. East Harlem offers a living proof.

Competition has revitalized the system. Failing schools improved, and

failing management are replaced. Students in inferior schools are not
left behind, they are rescued.

XI. Managing Competition

Competition must be carefully managed, if it is to work.

Just as education, unregulated markets generate inequity.
Organizations selling services tend to cream off the most
favorable business.

Example # 1

Most of our hospital today are profit oriented.

For profit hospitals, they turn away their patients who have no
insurance and send them to overcrowded hospitals.

This patient dumping can be severe.

Example: Dallas

There were 77% of patients transfer from other hospital because they
had no insurance.

Private hospitals routinely turned away patients without insurance to

public hospitals.

Sadly, eleven of them died.

Example # 2
A different form of inequity can threaten those who work for
competitive service providers.

Studies indicate that wages paid by the government and private

contractors are, on average, fairly comparable.

Studies suggest also that contactors offer fewer benefits, such as

health insurance.

Structured competition can produce more equitable

results than service delivery by public monopoly,

Contractors can be required to provide comparable wages and benefits

and to promote affirmative action.

This is important, if the values we embraced to our governments are

not to be lost when those governments use competitive contracts.

Contractors can also be required to serve all segments of

the market to keep from creaming off the most profitable
customers.

During the National Science Foundation study on garbage collection,

E.S. Savas found that competition heightened the equity of service
delivery because the public agencies were, in effect, creaming.
When the city forces encountered delays and did not want to pay
overtime, they would simply skip some areas that day often the
poorest areas, because they had the least political clout.
With a contractor that didnt happen, because the contractor had no
choice but to fulfill his contract. its a job to be done, rather than set
of neighborhoods to be differentially placated, depending their political
strength. Savas said.

Not structured markets that look competitive can also

succumb to monopolistic power.
Example, in contracting and procurement system, some
projects are so massive for all practical purposes it is
impossible to switch providers once the job has begun.

Defense contractors who build submarines and shops enjoys

this protection; it explains why they get away with endless
cost overruns and seem impervious to sanctions.

A similar problem is emerging with private corporations that contract

to operate prisons, many of which demand 20 to 30 year contract. There is
some reason to fear that instead of being competitive like the trash
collection industry, John D. Donahue wrote in The Privatization Decision,

prison management will be competitive like the nuclear-submarine industrywhich is to say, not at all.

Even when private firms do not have monopolies, they at times

develop enough political power to stifle competition. In mass transit, private
bus companies spend considerable sums to influence legislatures, to get and
keep their contracts. In garbage collection, large private firms use their
power to lobby against policies that would reduce the volume of garbage,
such as recycling and source reduction.
Even day care, private firms restrict competition.

Competition is here to stay, regardless of our governments must do. In

todays fast moving market place, the private sector is rapidly taking market
share away from public organizations. Public schools are losing ground to
private schools. The Postal service is losing ground to Federal express and
UPS. Public police Forces are losing ground to private security firms, which
now employ two-thirds of all security personnel in the nation.
We can ignore this trend watching fewer people use public institutions. We
can sit idly by as vicious unwinds in which the less people depend on
government the less they are willing to finance it , the less they finance it the
worse it gets, and the worse it gets the less depend on it.

Key Ideas

Or we can wake up as entrepreneurial leaders

from Phoenix to East Harlem to Minnesota have and
embrace competition as a tool to revitalize our public
institutions.

The choice is not quite as stark as it would be in a

competitive marketplace: compete or die. But it is stark
enough. Our public sector can learn to compete, or it can
stagnate and shrink, until the only customers who use public
services are those who cannot afford an alternative.