Why Private Contractors Are Lousy at Public Services

The latest U.S. employment data, released last week, showed that the federal government employs 2.7 million people. That’s the smallest number since 1966. One reason for that decline is the rise in outsourcing—a trend also in the news because of the rolling train wreck that is healthcare.gov, built by contractors overseen by the Department of Health and Human Services. A look at outsourcing’s track record around the world backs what the website’s snafus suggest: Turning over the delivery of government services to private contractors can cause as many problems as when governments provide those services themselves.

Excluding military personnel, the percentage of all employed people who are U.S. government employees has fallen from 4.3 percent in 1966 to 2 percent today (add in the military, and that would drop from more than 8 percent to about 3 percent). That’s not because the government is a smaller part of the economy—federal outlays were 18 percent of gross domestic product in 1966 and 23 percent last year. A big reason why the government spends more but employs fewer bureaucrats is the growth of contracting. According to a 2008 estimate by public administration expert Nicholas Henry, more than 5 million private sector workers were employed under government contracts, accounting for about half a trillion dollars of expenditure. For every federal employee, there are two people working on government contracts.