|
Wednesday, October 25, 2006
The Disturbing "Efficiencies" of the Free Market
On Monday, we criticized a very misguided commentary on the Heritage Foundation blog about how wasteful federal employees and the federal government are - a common, yet incorrect theme of theirs. The Heritage Solution: outsource government functions to the private sector and everything will be ok. The theory is that competative forces in the free market will drive down prices, and the government services will be provided for less. How could things go wrong?
In our response to Heritage, we claimed "Abuse, fraud and waste are rampant in federal contracting. Just take a look at the news and you'll see what [we] mean." Well, we only had to wait one day for confirmation. Today's Washington Post has an article citing the greed inefficiencies of private contractors in Iraq from one company in particular - Halliburton.
A report released yesterday by the inspector general's office overseeing Iraq spending found that at least 55 percent, or $163 million, of $296 million in total costs rung up by Halliburton unit KBR went to expenses such as back-office support, transportation and security. That percentage was significantly higher than it was on work by other firms in Iraq, and experts said it is far above what is typically found on a government contract.
The Post continues:
According to internal government documents released in March, auditors found that the company had repeatedly overcharged the government by, among other things, billing for work it didn't actually do and paying suppliers more than they were owed. Meanwhile, work schedules slid and company officials balked at requests for accurate cost estimates. At one point, officials threatened to terminate the deal.
Turns out the free market isn't quite as efficient as one would think. But maybe this is just the result of a politically connected company getting a contract without full and open competition in the free market. Unfortunately for Heritage, the answer is probably no. According to FedSpending.org, Halliburton received less than one-half of one percent of its contracts in FY 2005 through non-competitive bidding - a paltry $34.6 million out of a total of $5.911 billion) and has received an average of 83 percent of its contracts through full and open competition since FY 2000. Given that track record, it's highly likely this example is simply a display of the waste, fraud, and abuse that are possible under federal contracting, even with the competitive factors of the free market in play.
Yet another example of the private sector's failure to save the government money didn't dampen Halliburton's stock however - it rose over 5 percent yesterday on the news of the company's more than 18 percent increase in third quarter profits this year. Seems the only victims of wasteful contracting work is the American taxpayer.
Posted by Adam Hughes
|