The Editor Speaks: Robbie makes some interesting points even if I don’t entirely agree
A letter from a reader named as “Robbie” appeared on the CNS website last Sunday (5) under the heading “EY report not a fix-all”.
I agree with him.
Robbie begins:
“The Ernst & Young report (on the rationalisation of the civil service) has good and bad points and, despite whether or not I like Ezzard Miller, he has a very valid point (referring to Privatization will cost more).”
The Independent Member for North Side told CNS, “Efficiency and effectiveness cannot compensate for profit.”
Miller said “efforts to privatize garbage collection by the government in the 1990s would have seen a massive increase to the consumer even with the cheapest bid with a jump from $25 fees to almost $600.”
Miller also warned, “that both government and the consumer are likely to find that the promised savings will be nowhere to be found. By selling its assets or more profitable entities government will be left with nothing to subsidize the services that it must supply and those that are rejected by the market place because they are unprofitable. “
And he claims “ the recommended government fire sale may lead to increased taxes to help a leaner government pay for the services it must still supply as it will no longer have its more profitable revenue streams.”
Back now to Robbie:
“Recent research conducted by both academic scholars and business similar to E&Y actual DO NOT suggest that privatization has all the many benefit spoken of. One main argument is that the public sector service would improve because it is profit driven. However, this argument is flawed as recent research has emphasised the role of intrinsic motivation in public sector service. That is, most civil servants are civil servants not because of the wonderful great salary, but because they want to serve ‘intrinsic motivation’.
“Contrary to belief, benefits aren’t that great in the civil service/public service. Yes, they have 100% health coverage, but that is only for one health provider, the HSA. If they go elsewhere they pay 100%. And yes, they get full pension contribution, [EDITOR’S NOTE: A CNS reader says CS’s pay ½ of their pension contributions] but that is in the absence of cost of living increase, no bonus and no annual increment, even if additional qualification have been earned. There is more to the pension story should someone wish to find out the truth as well.
“According to Fehr and Falk, 2002, the standard assumption in economics is that only extrinsic motivation (money) matters: humans respond to the provision of pecuniary incentives. But by ignoring intrinsic motivation, reciprocity and fairness, economics has constrained itself to a narrow subset of human behaviours which may affect our understanding of contractual relationships. When services/companies go private or are outsourced, contract design will play an important role in determining the success of outsourcing arrangements. Can we really trust the private sector to be fair to public servants, most of whom will be Caymanians?
“Another caveat is that some public services may be less suited to outsourcing than others because the expectation that high-powered incentives generate improvements in productive efficiency may be flawed in instances where intrinsic motivation is important. The fact is the public service provides a SERVICE to the entire country. Neither finance nor tourism do. Reports/studies also suggest that there is some evidence indicating that quality of service may suffer in certain circumstances as a result of outsourcing and that workers may be worse off (at least in terms of their real wage).
“When privatizing or outsourcing, there may be savings but the savings may be transitory – although the empirical evidence is thin, there is some evidence to suggest that hold-up is a problem in outsourcing contracts.”
Robbie then lists various studies taken ‘piece meal’ to support his case. There are just as many ‘recent studies’ that have the opposite view.
He really goes to town on “outsourcing” giving the actual sources he is using.
“What does that mean?” He asks. “It means, of course, EY would recommend that public services businesses should be sold/privatized as it would be easy pickings for the private sector to take over because they are buying a business that is already stable in terms of capital investment needed.”
However, I don’t think this government is that naïve to sell off ALL their businesses that are “already stable” and be left with ones like “The Turtle Farm” that no one wants!
And Robbie does not provide any proven advantages for outsourcing eg.
- Focus On Core Activities – In rapid growth periods, the back-office operations of a company will expand also.
- Cost And Efficiency Savings – Back-office functions that are complicated in nature, but the size of your company is preventing you from performing it at a consistent and reasonable cost.
- Reduced Overhead – Overhead costs of performing a particular back-office function are extremely high. Consider outsourcing those functions that can be moved easily.
- Operational Control – Operations whose costs are running out of control must be considered for outsourcing. Departments that may have evolved over time into uncontrolled and poorly managed areas are prime motivators for outsourcing. In addition, an outsourcing company can bring better management skills to your company than what would otherwise be available.
- Staffing Flexibility – Outsourcing will allow operations that have seasonal or cyclical demands to bring in additional resources when you need them and release them when you’re done.
- Continuity & Risk Management – Periods of high employee turnover will add uncertainty and inconsistency to the operations. Outsourcing will provided a level of continuity to the company while reducing the risk that a substandard level of operation would bring to the company.
- Develop Internal Staff – A large project needs to be undertaken that requires skills that your staff does not possess. On-site outsourcing of the project will bring people with the skills you need into your company. Your people can work alongside of them to acquire the new skill set.
SOURCE: About.com
Robbie concludes:
“Something to remember: 6,900 public servants and the effect of the EY report if implemented without careful thought is not about 6,900 individuals but a minimum of 13,800 people inclusive of the elderly and children under 5.
“I am not a public servant nor would I want to be, but there is no way I could support the EY report in totality. There are some good points to consider, many of which I have heard the public service themselves put forward over the years.”
You can read the whole letter at: http://www.caymannewsservice.com/viewpoint/2014/10/05/ey-report-not-fix-all
Robbie does not deal with the one big perk of civil servants, especially the more senior ones – of being able to have the time to venture out into the private sector with another job!
Outsourcing could put a stop to that! CS’s also get this HUGE perk – they don’t pay for Health Insurance and that costs the country an enormous amount of money.
Are you suggesting, sir, that senior people in private bussiness can’t have multiple business interests? What law is that?
As for ‘free health insurance’ its (1) free without choice of doctors and (2) part of the overall remuneration package. Where is it written that bussinesses should not take good care of their employees? Is the ‘half-and-half’ balance some physical law? Or do you prefer a race to the bottom where, like the news about Walmart today, employees (part-time in that example) no longer get health insurance as part of their employment package? Maybe, like Walmart, you feel that employees should have to turn to state aid (food stamps) to make ends meet? I’d rather have higher government costs than more working poor.