Last month, The Los Angeles Times published a devastating exposé of one of the problems dragging down the California high-speed rail project: consultants. The state had only 10 employees to oversee the project in 2008 when work started, but the rail authority figured they could save money and time by hiring consultants to do basically the entire project. The result was the precise opposite: awesome delays and cost bloat, with the project 13 years behind schedule and $44 billion over budget.
This demonstrates a fundamental problem with modern American governance — lack of basic state capacity. A government must have in-house expertise if it is to undertake difficult, complicated projects. The first step to getting some is to stop this reliance on private companies to do the state's job for it.
California is far from the first community to see big projects brought down by a strangling kudzu of incompetent or corrupt consultants. Texas, for instance, has a huge social wealth fund (seeded mainly by oil money) created way back in 1854 to provide money for schools. As this major series of articles in the Houston Chronicle details, it was managed quite well by state employees until about 25 years ago, when private equity and other investment consulting firms were brought in to supposedly improve performance. The result was a giant increase in fees, worse fund performance, less money for students, and what looks like naked corruption, with billions of fund money reportedly invested in well-connected companies.
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Elsewhere, Newark undertook a massive overhaul of its school system along charter school lines several years ago, funded in part by a $100 million donation from Mark Zuckerberg. The reforms largely failed, and a giant chunk of the money quickly vanished into the pockets of insider consultants making a thousand bucks a day. Oakland schools were taken over by the California state government in 2003, which farmed out management to consultants. When the city got back control in 2009, enrollment had plunged and debt tripled.
The Denver transportation authority recently decided to operate a new train line itself, after years of bungling from the private firm operating three other lines.
Defense spending is also absolutely rife with this kind of incompetence and waste — witness the USS Gerald Ford, an aircraft carrier built by Northrup Grumman for $13 billion and counting, making it the most expensive warship in history. It's now over two years behind schedule and 22 percent over budget, and still had major problems with its munitions elevators and propulsion system when it was tested in March, requiring another three-month delay for retrofitting. Or consider Transdigm, a private equity firm that scooped up multiple military parts suppliers, and according to a recent Pentagon inspector general report, raked in excess profits on 98 out of 100 parts surveyed to the tune of 95 to 9,380 percent. (They charge $4,631 for a half-inch drive pin that should cost $46.)
At any rate, the ideology behind the consulting boom is classic neoliberalism — an ingrained belief that society must subordinate itself to the self-regulating market, and that government functions should be outsourced or privatized wherever possible. The results speak for themselves.
Now, there is nothing wrong in principle with government hiring private firms for certain tasks. Other countries do it all the time — hiring engineering companies to design projects, construction firms to build them, and so on. Indeed, the U.S. itself did this at a vast scale in the 1930s with the Public Works Administration, which hired private companies to build high-quality projects across the nation, like the Grand Coulee Dam and the Lincoln Tunnel.
But the state must still keep a tight grip on those firms, providing clear guidance and strong oversight to make sure the jobs are done properly and at a decent price — and often, it makes perfect sense for the state to just do the project itself. Conversely, as we see today, if government is inept, ignorant, or timid, consultants and contractors will simply line their own pockets and turn in shoddy, overpriced work.
State confidence and oversight capacity has plainly eroded away (or been deliberately destroyed) in all levels of American government over the decades. If we want the U.S. to be able to handle basic tasks like running a subway — let alone carry out the total economic overhaul demanded by the threat of climate change — Americans will have to rediscover the thinking and traditions that produced people like FDR's Secretary of the Interior Harold Ickes, who kept a close watch on PWA programs.
New York's beleaguered Metropolitan Transit Authority recently decided to award a $3.75 million contract to the consulting firm AlixPartners to find ways to restructure its bureaucracy and cut costs. This is exactly the kind of thing a government agency should be able to do itself — indeed, the recent explosion of overtime payments at the MTA was directly caused by New York Governor Andrew Cuomo's Subway Action Plan and hiring freeze at the agency (which is controlled by the governor). But so long as you have scheming incompetent politicians like him running the show, that's just the kind of performance you get.
