Are we better off having goods and services provided by entrepreneurs with private firms or by governments using government employees?
Congress has been locked in a battle over this question for several weeks. It was a major campaign issue last year. Other countries are having intense political fights over this issue, which will determine the future course of their economies.
At the moment, the question before Congress is whether to federalize the airport security screening services. The failure of the current system — which uses mostly small, entrepreneurial companies as subcontractors to
the airlines or airport authorities — have been widely criticized by the news media. What I have not seen in any of the reports is any evidence explaining why the federal government can do a better job than private companies.
The overwhelming evidence throughout the world is that government-run operations become bureaucratic and expensive, fail to innovate and do not treat customers with respect or care. For this reason, world governments are selling these inefficient operations to private enterprise and, with few exceptions, the privatized operations have dramatically cut costs and improved service and efficiency.
The reason entrepreneurial enterprises offer higher quality and lower costs is competition and freedom. Either the entrepreneur offers the highest quality service at the lowest cost or the customer has the freedom to go to someone else who does.
If the government is the only provider of the service, the customers have no other choice and have to put up with poor service. They do not have the freedom to go to another provider because there is no other provider.
Take the example of the airport screening services. If the government were to take over the business, the government would likely hire the exact same people currently working in the screening operations and use the same equipment.
Since cutting employee salaries would be difficult, the tendency would be to cut back on equipment and technology to keep costs in check. Over time the system becomes outdated, inefficient and expensive. There is no incentive to innovate.
The government could certainly set minimum standards for the private companies, which would force them to raise wages to attract higher-quality workers. Of course, these higher costs would have to be passed on to the customers, but this alternative still preserves the ability to fire any company failing to meet the standards — an ability we don't have if the government runs it as a monopoly supplier.
The argument about the role of the federal government came up under the Bill Clinton administration in the proposal to make health-care services a federal responsibility — remember "Hillary Care"? The issue came up again during last year's presidential campaign during discussion of school vouchers.
The evidence is overwhelming. Competition and entrepreneurial activity create a dynamic economy that best serves customers. I teach at a business school; a huge amount of time is devoted to training business students how to be responsive to customer needs, look for better ways to serve customers, exceed customer expectations and innovate to improve quality or reduce costs without hurting quality.
Much of the rest of the world is dominated by government-run operations that offer expensive products and services, mistreat customers and offer no freedom to choose an alternative.
The answer to the question is clear: Competition and freedom serve best.
Hal Heaton is associated with the BYU Center for Entrepreneurship. He can be reached via e-mail at cfe@byu.edu.