Downsizing Blog
Greek Postal Privatization
The Wall Street Journal reported in March that the Greek government was turning to the privatization of state assets to help reign in its debt burden. We suggested that the U.S. should follow suit, and offered Amtrak and the U.S. Postal Service as two ripe targets for privatization.
The New York Times reported last month that the Greek government is trying to sell half of its money-bleeding Hellenic Railways to the French. Unfortunately for the Greeks, Hellenic Railways suffers from a lot of the same problems the U.S. has with Amtrak (as we pointed out) and thus finding a buyer will be difficult.
The USPS inspector general recently noted that the Greek government plans to sell 39 percent of its national postal service, Hellenic Mail.
From the article:
Despite this partial privatization, the Greek government will still control 51 percent of Hellenic Post. Hellenic Postbank holds the remaining 10 percent. It will also remain the dominant company in the Greek postal market as EU regulators put off fully opening Greece to postal competition until 2013. This special regulation is because Hellenic Post must serve a large number of Greek islands in the Aegean Sea, making its universal service obligation far more expensive than most other areas of Europe. This also makes the Greek situation unique.
The important information here is that the European Union, despite delays, is moving toward de-nationalization of its member nations’ postal operations. This means postal operators will be subjected to competition.
Unfortunately, there hasn’t been any interest in Congress or the administration to entertain ideas like privatization or subjecting the USPS to competition despite its grim long-term prospects.
Posted by Tad DeHaven on August 19th, 2010
Alaska's Dependency on DC
A New York Times article on Alaska’s love/hate relationship with the federal government underscores why weaning the states off their addiction to federal dollars would be difficult. A lot folks in Alaska (and across the country) say they want smaller government, but aren’t as enthusiastic when asked about giving up their own federal goodies.
Alaskans possess a spirit of rugged individualism, and generally don’t appreciate the federal government sticking its nose in matters like oil exploration. But Alaska receives considerably more money per capita from Uncle Sam than it sends to Washington. For example, the Times cites figures that show Alaska received $3,145 per capita in stimulus money compared to $1,781 for the next closest state.
This disconnect – some would say hypocrisy – is exemplified by some of the state’s prominent politicians. Take for example Sarah Palin, the former Alaskan governor who has positioned herself as torchbearer for the tea party movement:
Sitting in valleys rimmed by mountains, glaciers and a vast alluvial delta, Matanuska-Susitna Borough, with its 83,000 residents, is a sub-Arctic suburb of Anchorage. Its largest city, Wasilla, is home to Sarah Palin. A year ago, while still governor, she took a stab at rejecting $28.6 million in federal stimulus for weatherization. As Alaska incurs a notable winter, Republican and Democratic state legislators overruled her and accepted the money.
Matanuska-Susitna Borough officials received about $111 million in federal stimulus, according to Pro Publica. There was $28 million for schools and $900,000 for a park-and-ride lot for commuters heading to Anchorage.
(Wasillans have a practiced eye for federal dollars; when Ms. Palin was mayor, she hired a lobbying firm that reeled in $25 million in federal earmarks for a city of fewer than 7,000 residents.)
I’ve pointed out before that Palin’s record hasn’t been very consistent on this issue.
As the following chart shows, federal subsidies to state and local government have exploded following the New Deal crack in the federalism dam. The chart separates total expenditures into health (mainly Medicaid) and non-health:
A Cato essay on fiscal federalism points out that state and local subsidies are the third largest item in the budget behind national defense and Social Security. Weaning the states off their addiction to federal money would be a good step toward getting the nation’s rising debt under control. It would also be a step toward returning the states to being the “laboratories of democracy” that once drew the admiration of Alexis de Tocqueville.
Posted by Tad DeHaven on August 18th, 2010
More on Federal vs. Private Pay
The release of updated industry data from the Bureau of Economic Analysis, which show that the average federal employee continues to earn significantly more in compensation than the average private sector employee, has Office of Personnel Management Director John Berry on the defensive.
In light of Berry’s assertion that Cato and other critics of federal pay are not “advancing a factually-oriented debate,” I’d like to make a few comments:
First, the Washington Post reports that top OPM officials point to Bureau of Labor Statistics data that “[f]ederal employees made on average 22 percent less than workers in similar private-sector jobs.” To Berry’s credit, he dismissed that figure (along with comparisons made using BEA data) as being “faulty.”
Even if the BLS data comparison were true, it would only reflect wages. Federal benefits are generally more generous than those found in the private sector. We use the BEA data because it provides the most comprehensive accounting for the value of employee benefits.
Second, defenders like Berry point to higher education levels in the federal workforce relative to the private sector as a reason for the higher average compensation in the former. Because the aggregate private data includes industries with lower-skilled employees, like restaurants, defenders say comparing averages isn’t “fair.”
However, breaking the BEA data out across 72 industries shows that the federal civilian workforce as an industry ranks sixth in terms of average compensation. As one would expect, average compensation in the restaurant and bar industry is dead last, and financial services are at the very top. (See this blog for the breakdown.)
Third, in addition to ignoring benefits, defenders also ignore other perks of federal employment including extreme job security. According to BLS data, in 2009, a private sector employee was more than three times more likely to be laid off or fired than a federal employee. As my colleague Chris Edwards points out in an essay on federal pay, federal workers also “receive generous holiday and vacation schedules, flexible work hours, training options, incentive awards, generous disability benefits, and union protections.”
Fourth, BLS data shows that a federal employee is more than 8 times less likely to quit than a private sector employee. We’ve argued that this indicates that federal employees recognize that the generous combination of wages, benefits and job security is hard to match in the private sector, so they stay put.
Defenders of federal pay haven’t adequately addressed this point. Attributing this discrepancy to a selfless motivation on the part of federal employees to serve the nation would be nonsense. A question that defenders need to answer is: if comparable private sector pay is so much better, why don’t more federal employees leave for the private sector? If they’re as high-skilled and educated as defenders claim, why settle for less than they’re worth?
The question of worth leads to the fifth, and in my opinion, the most important point.
I think the most valid criticism defenders of federal pay offer up is that we’re comparing “apples and oranges.” However, although they have a point, it's not for the reasons they suggest.
In the private sector, an employee’s compensation is a reflection of his or her value in the market. For instance, one may not like that LeBron James makes millions of dollars playing basketball, but that’s what the market for professional basketball players says his production is worth. It’s no different for a considerably lower-paid employee in the restaurant industry.
What’s a federal employee worth? How does one measure a government employee’s production? Government isn’t subject to market disciplines. It can’t go out of business. It has no competitor. It doesn’t need to earn a profit let alone break even. It doesn’t receive its revenue from voluntary transactions – its revenues are obtained via taxation, which are paid by individuals under compulsion and force.
Therefore, federal employee compensation is a function of the political process. Government employees are plugged into a pay scale, and can move up the scale by simply sticking around. President Obama proposed in his fiscal year 2011 budget that federal civilian employees receive an arbitrary across-the-board 1.4 percent pay increase. What does that figure have to do with a federal employee’s worth?
Federal and private employees are apples and oranges because the former is dependent on the latter for its existence. In the natural world, this relationship is call parasitism. This is not a pejorative statement. Every dollar earned by a federal employee is one less dollar that a private sector employee earns. One can argue over a federal employee’s value to society, but one cannot argue that the perceived value doesn’t come at the expense of the private sector.
According to the BEA, total federal wages and benefits amounted to $240 billion in 2009. That’s $240 billion in economic resources extracted from the private sector. Given that the private sector has lost millions of jobs while federal employment continues to expand, defenders of federal pay can’t just dismiss the critics as being “unfair.”
Posted by Tad DeHaven on August 17th, 2010
