Accountable Strategies blog

A blog about accountability issues in the public, private, and nonprofit sectors

Archive for September, 2007

The “marketized state”–where’s the beef?

Posted by David Kassel on September 27, 2007

It’s hard to know what to make of an article in the current (September) issue of  PA Times, the monthly newsletter of The American Society for Public Administration, which announces that we are headed inexorably toward a “marketized state.”

The article, titled “Is State-Centered Public Administration Dead?” defines a marketized state as one in which “public purposes are achieved principally through market exchanges, and the marketplace is the principal artiter of the allocation of public resources.” 

The marketized state, according to the article’s authors, Uday Desai and Keith Snavely, is the third in a progression of governmental models over the past century—-the first being the traditional administrative model and the second the privatized model.

Most of us are familiar with these first two models.  The traditional administrative model is defined by the authors as being characterized by “hierarchical state administrative structures which have a powerful influence on molding public policy and through which programs are implemented.”   

The centerpiece of the privatized state, they note, is contracting by government for goods and services with the private sector.  Desai and Snavely add that this is more than just purchasing things from vendors, but involves shifting public service capacity to the private sector for social, management, security, cultural and many other services.

In the marketized state, government neither delivers services directly nor contracts with private firms or nonprofit agencies for services, they say.  Instead, this model:

…pursues public purposes by structuring market exchanges through which citizens select the type and quantity of the services they desire.

Desai and Snavely provide a number of examples of this, including health savings accounts that offer tax incentives to citizens to purchase private health insurance and individual accounts for the unemployed that allow them to “purchase” job and skill development training.  The authors also mention the increasing use of vouchers, tax credits, subsidies and loans, and the use of economic incentives such as pollution permit trading as examples of marketized exchanges.   Economic incentives and financial instruments are emphasized rather than government regulations  as ways to protect workers’ health and safety, prevent pollution and protect the environment, they point out.

 There’s no doubt that there has been growing interest for many years in the use of economic incentives as an alternative to regulation, particularly in the environmental arena.  But all of these examples given by the authors of market exchanges don’t appear to constitute very much of what government still does and is likely to do in the future.  Moreover, tax credits, subsidies and loans are nothing new.  Government has been providing them seemingly from the beginning. 

There’s also no doubt, as the authors assert, that there has been a steady retreat by the administrative state over the past two or more decades as the privatized state has moved in to supplant it in so many areas.  But the authors don’t present a lot of evidence to back up their contention that “current trends are towards supplanting of the privatized state by the marketized state.”

 This isn’t to say that Desai and Snavely aren’t on to an important trend.  I’d be interested in hearing their ideas as to how government could establish marketized incentives that would stimulate the private sector to repair and maintain our infrastructure, for instance, or provide high-quality care for the mentally retarded.   If those things could be done under a marketized state, there might well be an improvement over the record that’s been shown in those areas by the administrative and privatized models.


Posted in Nonprofit, Private, Public | Comments Off on The “marketized state”–where’s the beef?

Government’s role in the subprime mortgage crisis

Posted by David Kassel on September 20, 2007

Once again, a major financial scandal appears to stem, at least in part, from a failure of governmental oversight—-in this case, oversight that has been sloughed off onto the private sector.

The problem involves the use by government regulators of private corporations, such as Moody’s, S&P, and Fitch, to rate the securities that have been at the center of the spreading subprime mortgage crisis. 

 The New Republic reports that the government has overlooked an apparent conflict of interest on the part of these rating organizations. The conflict stems from the fact that the securities involved here are largely based on mortgages sold by lenders to investment banks.  As The New Republic noted, the private rating organizations are paid large fees by the issuers of these securities to issue their ratings.  

The predictable result has been that the rating organizations have consistently rated these mortgaged-back securities as “investment grade,” meaning they are viewed as carrying low risk.  But many of these securities were, in fact, highly risky because they were based on mortages given to borrowers who could not afford to pay them.

The New Republic notes that the regulators were “entrusting much of their own oversight responsibility to the ratings agencies.”  It was clearly a mistake on the part of the regulators, including among them the Securities and Exchange Commission, to slough off their oversight responsibility in this case because the ratings agencies were in the tank with the issuers of the securities.

While the private sector often complains about the burdensome nature of government oversight, it seems more clear than ever that oversight of the private sector is necessary to protect the rights of the public, taxpayers, and other stakeholders.  When that oversight itself is privatized, the problems can be compounded.

In a panel discussion this week at the Kennedy School of Government,  Jane Nelson, head of The Kennedy School’s Corporate Social Responsibility Initiative, noted that we are entering an age in which private enterprise is becoming more influential, while “governments are facing growing constraints” in carrying out their traditional functions.

I emailed Allen White, one of the speakers on the Kennedy School panel, to ask him whether he thought the subprime mortgage crisis can be seen as a consequence of the growing influence of the private sector, which has come about, in part, as a result of the increasing privatization of governmental functions, such as oversight.  White, a senior fellow at the Tellus Institute in Boston, is the author of a recent paper calling for the writing of a new “social contract” among government, the citizenry, and the private sector.

White responded cautiously to my question.  Privatization of governmental functions “is not intrinsically ill-conceived,” he noted.  But, he added, the use of private securities rating organizations:

…is an example of privatization of a service that is one of the pillars of efficient and fair capital markets.  As such, the terms and conditions of privatization must be set with extreme prudence to avoid the conflicts that are now the subject of Congressional investigation.

Let’s hope one outcome here is a re-assessment of the role and practices of government in this key area of operation of our capital markets.

Posted in Corporate responsibility, Oversight, Private | 1 Comment »

Continuing problems at Homeland Security

Posted by David Kassel on September 12, 2007

The Government Accountability Office has found that managerial problems are continuing to hamper virtually all the major functions at the Department of Homeland Security, the mega-agency entrusted to protect us against terrorist threats and other disasters.

In the wake of a critical report in April by the DHS Inspector General, I wondered here whether DHS’s management problems stem from poor appointments made by the president of top administrators at DHS, or whether the Bush administration has established an inappropriate or ineffective accountability system in the agency.

 The latest GAO report does give DHS credit for having taken important steps during the past four years “to secure the nation’s borders and transportation sector and to protect, defend against, and respond to threats and disasters.”  At the same time, GAO found that an “array of management and programmatic challenges continues to limit DHS’s ability to fulfill its homeland security roles in an effective, risk-based way.” 

The report notes that the ongoing management problems may stem, in part, from the sheer difficulty of combining 22 different agencies, which was done in creating DHS in 2002.  Successful transformations of large organizations can take five to seven years to achieve, the GAO stated. 

That may be the case, but given the sense of national emergency that resulted in the creation of DHS, one would think that every effort would have been made to successfully transform the agency as quickly as possible.  That just doesn’t seem to have been the case.  At least that’s the impression I got from reading the latest GAO report on DHS’s inability thus far to achieve so many key “performance expectations.”

For instance,  according to the GAO, DHS has not adequately assessed levels of risk or vulnerability to attack in many areas—-a necessary step in determining where best to put the agency’s resources.  One DHS agency, the Transportation Security Agency (TSA), has not yet “conducted assessments of air cargo vulnerabilities.”    

 Also, despite developing a number of systems to prevent potential terrorists from entering the U.S. accross its northern and southern borders, GAO agents have repeatedly been able to enter the country using fictitious documents.  Customs and Border Protection (CBP) officers were unable to effectively identify counterfeit drivers’ licenses,  birth certificates and other documents.

In addition, DHS has failed to assess the likelihood that radiation detection equipment it has used would either misidentify or fail to detect nuclear or radiological material, the GAO said.  Instead, DHS has focused its efforts on reducing the time necessary to screen traffic at border checkpoints and reduce the impact of any delays on commerce.

Here are some other examples of DHS performance expectations achieved and not achieved, according to the GAO report:

Achieved:  Develop a strategy to detect and interdict illegal flows of cargo, drugs, and other items into the U.S.

Not achieved:  Implement a strategy to detect and interdict illegal flows of cargo, drugs, and other items into the U.S.

Achieved:  Develop and implement processes and procedures for physically screening passengers at airport checkpoints.

Not achieved:  Develop and implement an international passenger pre-screening process to compare passenger information to terrorist watch lists before aircraft departure.

 Achieved:  Deploy explosive detection systems (EDS) to screen checked baggage.  And develop a plan for air cargo security.

Not achieved: Develop and implement technologies to screen air cargo.

Achieved: Administer grant programs for security of surface transportation, which includes passenger and freight rail, mass transit, highways, and pipelines.

Not achieved: Conduct compliance inspections for surface transportation systems.

Achieved: Develop national plans for maritime security.  And develop a system for screening and inspecting maritime cargo for illegal contraband.

Not achieved:  Develop a program to screen incoming maritime cargo for radiation.

Achieved: Administer a program for providing grants and assistance to state and local governments and first responders in terrorist attacks and disasters.

Not achieved: Ensure the capacity and readiness of disaster response teams.

Achieved: Develop a comprehensive national plan for critical infrastructure protection.

Not achieved: Improve and enhance information sharing among public agencies and with the private sector involving attacks, threats, and vulnerabilities.

Achieved: Coordinate and share homeland security technologies with federal, state, local, and private sector entities.

Not achieved:  Assess emerging chemical, biological, radiological, and nuclear threats.

Achieved: Develop a comprehensive plan for training and professional development within DHS.

Not achieved: Develop and implement processes to recruit and hire employees who possess needed skills.


Posted in Oversight, Private, Public | 3 Comments »

When privatization is taken to the extreme

Posted by David Kassel on September 4, 2007

Private security contractors in Iraq may provide the ultimate example of the questionable privatization of a core governmental function.

According to the Los Angeles Times, more than 180,000 civilians — including Americans, foreigners and Iraqis — are working in Iraq under U.S. contracts.  The Associated Press has reported that about half of these are private security guards, who are equipped with automatic weapons, body armor, helicopters and bullet-proof trucks.  They operate with little or no supervision, the AP reported, and are “accountable only to the firms employing them.”  They have been accused of indiscriminately firing on both American and Iraqi troops, and of shooting to death an unknown number of Iraqi citizens who allegedly got to close to their convoys.  Not one has faced charges or prosecution.

 In a 1998 paper in Public Administration Review, titled “Reinventing Government Accountability: Public Functions, Privatization, and the Meaning of ‘State Action,'” Robert Gilmour and Laura Jensen expressed a number of concerns about the loss of accountability that naturally occurs when governmental services are privatized.  They were talking only about services shifted to private parties by our federal and state governments right here in the U.S., such as housing, garbage removal, transportation, and Medicare services.  They weren’t even considering what happens when our government privatizes functions overseas, in a war zone.

How is this accountability lost in any case?  Gilmour and Jensen note that government offcials are held legally accountable for their behavior in order to protect the constitutional and statutory rights of citizens.  They must abide by such things as the Bill of Rights and the Fourteenth Amendment to the Constitution, and by management laws such as the federal Administrative Procedure Act of 1946, which allows citizens to sue federal agencies that violate their rights and mandates access to agency records.  The Freedom of Information Act is part of that scheme of rights and protections as well.

When governmental functions and services are privatized, courts have been inconsistent as to whether these same services can still be considered to be “state actions.”  As a result, citizens’ rights are often no longer protected by the usual rules.  If these privatized services are now considered to be private acts, legal accountability for them can only be maintained by such things as criminal prosection, contract enforcement, or lawsuits.  The Fourteenth Amendment and the Freedom of Information Act don’t apply anymore.

So how can accountability be maintained in Iraq, where there is apparently no legal consensus as to whether security contractors are engaging in state actions or not, and no will or way to prosecute them criminally? 

Gilmour and Jensen note that “if private actors are not subject to the rules set for government action, delegating authority to private parties may allow the government to do through them what it cannot do itself.”  No doubt, that’s why we’re allowing these private security guards to operate in the first place.  They apparently do things our military isn’t authorized to do itself.

It would seem that Congress should appoint a commission or task force to determine whether security contractors in Iraq are engaging in state actions or not, and exactly which constitutional provisions and laws may or may not apply to them.  Allowing these contractors to continue to operate without any accountability seems like a bad precedent, even for privatized services back here in the U.S.

 Gilmour and Jensen point out that laws and other bureaucratic constraints on government administrators are what often promote the argument in favor of privatization as a way of sweeping away “red tape.”  But the security contractors in Iraq show what happens when privatization is taken to the other extreme, in which no rules or regulations appear to operate or apply.

Posted in Oversight, Private, Public | 1 Comment »