The Iowa caucuses disaster was a failure of the private sector

Monday night, the Iowa caucuses marked the official start of the Democratic Party's effort to select its 2020 presidential nominee. Unfortunately, as of Tuesday afternoon, we still have no idea who Iowans chose. The results have fallen into confusion and disarray. And while there were all sorts of difficulties apparently brought about by rules changes made after 2016, a big part of the problem was reportedly a new-fangled results reporting app designed by a private contractor.

HuffPost reported that the Iowa Democratic Party paid a tech company called Shadow $60,000 late last year, to develop an app to speed up the caucusing process and allow locals to upload their results: "The app was supposed to make reporting the results easier and quicker," HuffPost wrote, "but on Monday, numerous Democrats in Iowa reported major problems in attempting to download the application and upload results, with many saying they resorted to calling the results into state party headquarters in Des Moines." A Democratic digital nonprofit organization named ACRONYM, started after 2016, apparently funded and helped launch Shadow, though they're now backpedaling furiously from claiming direct responsibility for the tech company.

Certainly not all private contractors hired by the government deliver bad service. But the amount of Iowa-style debacles that do happen is striking, given the long-standing assumption in American politics that the private sector is inherently more efficient and effective than the public sector.

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The military is one obvious example: The F-35, intended to be one of the Pentagon's newest and most impressive fighter jets, has been rife with problems for years. The government has already paid Lockheed Martin $428 billion for the project — roughly enough to cover the federal tab for Medicaid for one year — but the plane is still drowning in problems. The USS Gerald Ford is now the most expensive aircraft carrier ever built — Northrop Grumman has made $13 billion on it so far — but it's behind schedule and at least 22 percent over budget, with propulsion and munition systems that need further fixes. The Defense Department also gets regularly overcharged by private contractors for more mundane and numerous parts and services.

Remember the disastrous rollout of Obamacare's private insurance exchanges, when the initial weeks of operation were beset by glitches and delays? That was also the work of multiple private contractors hired by the government to build the exchanges and their database. It turned out that one of the contractors, CGI Global, had been previously kicked to the curb by the Canadian government after it screwed up a $46 million medical registry system.

Another major source of cost and incompetence is government reliance on private consulting firms. A recent scandal over how the consulting firm McKinsey helped the Immigration and Customs Enforcement (ICE) agency become more "efficient" — often through harsher treatment of detainees — enveloped Democratic presidential contender Pete Buttigieg, thanks to his former work with the firm. But the revelations also shined a light on how consulting firms often ridiculously overcharge the government for mundane advice offered by people barely out of college. One of McKinsey's competitors, the Boston Consulting Group, charges over $33,000 per week for the time and advice of consultants with no experience beyond a college degree. McKinsey itself goes even higher, at over $56,000 per week. The best part of the ICE story was that the agency's decision-making process for how much to pay McKinsey's consultants was farmed out to ... McKinsey consultants.

A large part of the problem seems to be a screwy formula for how the General Services Administration pays contractors — essentially, the system rewards the GSA for spending more money rather than finding savings. The irony is that this system was set up during the "Reinventing Government" initiative under the Clinton administration in the 1990s, and that reform was supposed to be all about making government more entrepreneurial, in the spirit of the private sector. This was also the time when congressional staffs and government's in-house policy experts were massively slashed, leading to a modern policymaking apparatus that effectively cannot think for itself, and must instead often farm the very writing of legislation out to lobbyists and privately-funded think tanks, because they're the only people who actually know how to do it.

At this point, the population of people employed by private contractors working for the government is significantly larger than the population employed by the federal government directly. Meanwhile, the amount we spend on this "shadow" government workforce has increased nearly every year since the mid-1990s, and stood at $520 billion as of 2016.

Nor is this problem limited to the federal level. As my colleague Ryan Cooper recently detailed, these boondoggles and screw-ups are rife at the state and local level: California's high-speed rail system has been dragged down into massive cost bloat and years of delays after the state government thought it would be more efficient to hire private contractors and consultants to oversee the work; Newark's scheme to reform its school system, based on the privatization and charter school philosophy of consultants, wasted scads of money and met an ignominious end; meanwhile, private equity consultants have jacked up costs and delivered poorer performance after being hired to oversee the Texas state government's wealth fund for its education system.

The overarching assumption here is that private sector actors are more efficient and effective because, unlike people working within the institutions of government, they've been shaped and disciplined by the forces of the for-profit market. But the real-world market is rarely like the "efficient" ideal market of theory; instead, it's shot through with inefficiencies and monopolies that can leave private corporations just as sclerotic and bloated as the worst government bureaucracy.

In hiring private contractors, the Defense Department, for example, will not enjoy the ostensible benefits of private sector discipline if those same contractors are veritable monopolies in their fields. One big thing that apparently undercut Obamacare was that the contractors who could make it through the bidding process had dwindled to a small handful of legacy firms.

The government itself is hardly innocent here. It decides the spending formulas, it runs the contracting process, it provides the oversight. It's government officials that listen when the higher-ups at places like McKinsey call to complain that their people aren't being paid enough, and it's government that must balance the need for thorough vetting of contractors against the need to avoid a bidding process that's so cumbersome only the biggest and most connected firms can get through it.

Yet the government's sloppy payments schedules and poor oversight all happened as part of a decades-long push to shrink government's institutional footprint in favor of firms from the private sector. In the act of scaling itself back, the government seems to have often delivered the worst of both worlds.

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