Tuesday, March 24, 2009

Marketization: A new approach to government services

In our agenda this week, we approved a contract to have the YMCA staff the Hunter pool for the summer. That got me thinking about other creative ways we can provide city services….

The City of Pensacola performs a large range of services: fighting fires to servicing cars, running a library to sweeping streets. Some, like police and fire, are unique to the city. In other cases, by opening the service up to competition, we can improve the efficiency of the overall services of the city and improve our bottom line.

I would like to see us open up more city functions to competition, but with a particular twist—city departments get to bid, too. This is not “privatization” but “marketization.”

What might happen?
  • City workers will demonstrate that they can provide services more efficiently and at a lower cost than the private sector.
  • In other cases, we may discover that the private sector is more efficient, and in those cases we will save money.

Indianapolis experience
Steven Goldsmith, the former mayor of Indianapolis, is a major proponent of the idea of opening up certain city services to competition. In Indianapolis, city workers compete with the private sector. During the course of marketizing of city services, the city discovered that it is not the city workers who make for inefficiencies in government. Rather, the bureaucracy of the government itself often limits the creativity and initiative of the employees. If the systems are changed and the workers are liberated from bureaucratic constraints and have a vested interest in the success of their small corner of the city, they can compete against private-sector service providers, and often win.

Yellow Pages test
A concern with privatizing services is sometimes that we would get a private company to do a task and then would no longer have in-house skills. Subsequently we could be at the whim of the private company who could raise our rates. The key for avoiding this is to marketize only areas where there is sufficient competition in the community to ensure that we continue to get a competitive rate. A very simple test for this is the Yellow Pages test. If there are three or more companies listed in the yellow pages who perform a service the city currently performs, then that service can be opened up for competition. It is the kind of free market capitalism that built our country

Competition empowers employees
Since I’ve been on council, I’ve met many city employees, and I’ve discovered this: our employees have better ideas on how to run this city (or at least their slice of it) than I do. Unfortunately, we often trap them in “a system that punishes initiative, ignores efficiency, and rewards big spenders.” [Much of my information on the Indianapolis experience and this quote come from The Twenty-First Century City by Stephen Goldsmith. Indianapolis has been a leader in marketization and reviewing their experiences can help guide us. I am not advocating adopting all of Goldsmith’s inititiatives. Instead, we can pick the best of his ideas and adapt this process to suit our unique needs.]

By letting the employees function more like those in the private sector, we can unleash their creativity, likely finding many cost savings. Additionally, in Indianapolis the city employees who started bidding in competition with the private sector soon started demanding a reduction in overhead to increase their competitiveness. Morale increased which also resulted in increased productivity. In Indianapolis, city workers win about 25 percent of the bids. In addition, they have become so effiencent that they actually win bids for contracts with other local governments.

Government workers have advantages
In some ways, we should expect that government would provide services for a lower price than the private sector. The city doesn’t pay property taxes, we don’t have to make a profit, and we get financial deals like lower utility and borrowing costs. Therefore, it is logical that city employees, when empowered to think creatively about their jobs, could compete successfully with the private sector.

Support for local small businesses
One of the biggest issues that keeps cropping up on council is supporting local, small businesses. Many of the types of things that the city could open to competition are the things that local, small businesses do. If the private sector wins a contract, then the money we spend will, in many cases, stay in our community and strengthen our businesses.

Sometimes the winners won't even be businesses at all. For instance, in Indianapolis some of the park maintenance is performed by churches in the neighborhood. Who would care more about maintaining a neighborhood park than the neighbors?

How to get started
At our committee meeting yesterday, I raised this issue. Council supported me in asking staff to identify a targeted group of services where they think that our employees could clearly compete with the private sector and provide a plan for moving forward on marketization of those services. Again, keep in mind that the services targeted will be ones not unique to the government; more likely they will be the support services that underlie many business functions.

By the way, I want to stress that this is not a criticism of our employees. I know there is anxiety among employees about their job security in this economic climate, but this kind of shift would allow them to have a degree of control that they don’t currently enjoy.

We sometimes hear about the Creative Class. The Creative Class, importantly, is not just scientists and artists, it is anyone who uses creativity in their work. I think that we can use this structure to help all our employees, whatever their role, become creative problem solvers. Workers who are creative, who know that they have say in their job, tend to have higher morale. And, in the end, they do a better job for our citizens.

This is truly a paradigm shift on the way we do government business.

For more information, I recommend this website which has a number of resources about the tenure of Goldsmith or the book by Mayor Goldsmith, The Twenty-First Century City. Of course, there is lots of information out there, and a simple search will turn up lots of links.