May 5, 1977

May 5, 1977 | Backgrounder on

Government Competition with Industry


(Archived document, may contain errors)

5 May 5, 1977 GOVERNMENT CCPIPETITION WITH INDUSTRY Introduction An issue which may come before the 95th Congress is the problem of government competition with industry. In many instances, the government is a ctually pro ducing goods and services which could easily be produced in the private sector at a lower cost to be in the business of competing with private enterprise.

One of the major criticisms of government competition with industry is that it is freque ntly far more expensive for the government to produce a good or ser vice than it is for the private sector to do so. This is basically because government-run production facilities are experiencing far higher labor costs than private facilities pensation f or private-sector employees supplying the government is O 5

46. For the same goods and services produced by the govement, the average cost of cm pensation would be $14,267 facilities for the production of goods and services are 35% higher than the equivala nt private-sector facilities indicative of relative productivity of government and private-sector workers Therefore, there is no overwhelming reason for the government Estimates indicate that the average annual cost of com In other words, compensation cos t s at government These figures also correspond with ones Productivity According to the National Commission on Productivity and Work Quality, the prig vate sector continued to be 20% more productive than the public sector through 1975 It estimated that prod u ctivity in the private sector grew at a rate 20.7 higher than the public sector for the years 1967 1973 vious public-private productivity relationships part of tlie reason for the disparity between private and public-sector producti vity lies in the dispa r ity between incentive for efficiency and resource maximization This Mintaim pre According to the Cdssion L NOTE This material was written upon request and is not to be construed as necessarily reflecting the views of The Heritage Foundation or as an attem pt to influence or to aid or hinder the passage of any bill before Congress.

There is little doubt that the evidence points toward an increasing dependence by the federal government on the public production of goods and services. In 1973, 60.5% of the $90. 6 billion worth of federal goods and services were pro duced in the private sector; in 1973, only 50.4% of the 106.5 billion dollars worth of federal goods and services were privately produced.

Wasteful Competition Actually, in many instances there is no observable reason for the federal gov ernment to produce the goods it needs. One example of how the federal govern ment unnecessarily competes with private industry is found in the Technology Transfer Consortium of Defense research laboratories services t o state and local governments which could otherwise be provided by pri vate concerns.

Projections for 1973 exceeded $15 million This office was organized out of some thirty Department Its specific purpose is the sale of research In 1972 alone it reported sales in the aggregate of $10 million.

Another example lies in the Office of Coal Research.

Department of the Interior. It recently signed a contract with the Air Force to research a more efficient method of generating electrical power from coal.

The con tract was in the amount of $3.45 million other research currently under way in industry-sponsored research organizations and will certainly lead, if it is successful, to direct competition with these groups for business in the commercial market This offic e is under the This research closely parallels Another more direct instance of unnecessary competition by the government with the private sector lies in the National Oceanographic Instrumentation Center.

This agency is part of the National Oceanographic and Atmospheric Administration of the Department of Commerce in the area of instrumental calibration. It has been actively seeking contracts and has made an extensive capital investment in a number of regi onal centers.

Private firms have reported a substantial loss of business to the centers large degree, this is because all NOM activities must use the NOIC services and all grantees should use them under NOAA direct agency which resume use of its facilities without any stipulation as -to cost or convenience It is in dlrect competition with commercial firms 5 In There is obviously no This, it should be noted, is Moreover, the U. S. Air Force has begun competing with private enterprise in a big way ernment de pot, even though there was-no indication that any saving was involved.

This work entailed approximately 800,000 manhours work with the stipulation that certain test (thermal-vacuum testing) be performed at the USAF Engineering Development Center without co nsideration of whether or not the bidders were capable of performing the tests themselves estimated $300,000 increase in the cost of the contract posals from five contractors for modifying the C-130B aircraft, the Air Force wwfidupdoing the work itself. v a rious facilities which were previously filled by civilian contractors It transferred the overhaul of C-141 aircraft from contract to a gov It solicited proposals for The result was an After soliciting pro It has also cut down on numerous positions at -3 T h e Army-also has competed with industry firm initiate certain data-processing programs, the Army Material Command estab lished an in-house data-processing unit to complete the work Some of the worst examples of wasteful competition-"afe:the 0ne.s whi-ch,wi n d L costing the taxpayer more in order to keep manpower-levels up in armed ser vices For example, the Navy terminated a contract under which UH-1 helicopters were inspected and repaired by a civilian company and transferred the work to the Navy depot at P ensacola, Florida erage of 7.25 per hour; the Naval cost of the work.was $13.30 per hour thermore, the average for the civilian firm was 2,100 man-hours per aircraft.

The Naval:'-average was 2,400 man-hours per aircrtift. The Air Force phased out contracts with private firms for the performance of IRAN on B-52's. The work was transferred to the San Antonio Air Material area ing the work there was to maintain AMA manning levels.

These are just selected examples in all too many instances work which could be performed easily and frequently less expensively, by the private sector currently is being performed by the fed eral government. Aside from the cost in tax dollars for higher government com pensation, other costs are involved cost of the misdirection of c a pital For example, after having a civilian The private firm did the work at an av Fur The reason for performt?ij They are intended to illustrate the fact that Most serious of these is the intangible Capital Shortage We know from numerous economic studies a hd projections that our country is suf fering from a severe capital shortage. Studies by Chase Econometrics, The New York Stock Exchange, and Westinghouse, to name a few, indicate that we are ex periencing an annual capital shortfall on the order of $50 b illion. This short fall means that jobs which would help relieve our unemployment situation are not being created industries to compete effectively with foreign competitors are not being made.

It means that tax dollars on additional revenues are not materializing means that our rate of productivity will continue to lag behind the other in dustrialized nations in terms of growth.

In short, it means that our economy will be hampered in reaching its full potential apparent justification It means that needed c apital improvements which would allow our It To have our government contributing. to this situation is without There may be some goods and services which only the government can produce but, if there are, they are few in number that any useful purpose is served by the government ctnnpeting with the private sector In addition, there is no indication By Milton R. Copulos Policy Analyst

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