Posts tagged with: public sector

Blog author: berndbergmann
posted by on Thursday, March 27, 2008

In a front-page article of the March 20-21 edition of the Vatican’s newspaper, L’Osservatore Romano, entitled “L’aqua bene comune per tutti” (“Water: Common Good for All”), an Italian political scientist laments that a basic necessity of life is bought and sold.

Riccardo Petrella of the Catholic University of Louvain in Belgium is rightly concerned that a billion people do not have access to clean drinking water. While he criticizes world leaders for not making this problem a top priority, his main target is actually the economics of treating water as a commodity.

He blames economics for creating a shortage of water: “This approach does not recognize any human and social rights, there are no public goods or services just private economic goods and services based on economic interest. The commodification of water is accompanied by a privatization of the water supply. In this context, shortages are accepted as ‘natural’, inevitable….”

This is a prime example of combining good intentions with bad economics. Petrella mistakenly assumes that economic goods and common goods are mutually exclusive, when in fact prices help regulate the production and distribution of a natural resource.

Only a small part of the global water supply has actually been privatized. Over the last twenty years or so, the process of privatization has been accelerated, and the availability and the quality of water has generally improved. This is not only true for Western countries but also in less developed countries.

Take Chile as an example. It aggressively privatized its water industry and has vastly enhanced access to water for the poor. Usage of potable water went up from 63 percent to 99 percent for the urban and from 27 percent to 94 percent for the rural population after the introduction of markets for trading water rights.

In contrast to what Petrella asserts, privatization, rather than being a cause of water shortage, is increasingly seen as a remedy to this problem. In Saudi Arabia, for example, privatization was introduced after a shortage of water caused riots in November 2006. The government had exacerbated the problem by subsidizing water to keep prices low. This led to an inefficient and careless usage of water. Riyadh had to change course and is now planning for half the population to be covered by private water companies by 2010.

It is misleading to suggest a contrast between private enterprise and the common good since the market tends to channel resources to where human demand is strongest and can fill gaps in investment and expertise where the public sector fails. It’s certainly no violation of human rights to promote a competitive market for something as essential as water.

According to figures recently released by the U.S. Bureau of Economic Analysis, federal workers receive on average about double what private sector workers make: $106,579 vs. $53,289. These numbers are based on total compensation.

A study done by the Cato Institute (PDF here of 2004 figures), under the direction of Chris Edwards, shows that for 2005, “If you consider wages without benefits, the average federal civilian worker earned $71,114, 62 percent more than the average private-sector worker, who made $43,917.”

In his WaPo op-ed, Christ Edwards points to a number of reasons for this disparity. He says that there are a number of contributing factors. “Federal pay schedules increase every year regardless of how well the economy is doing. Thus in recession years, private pay stagnates while government pay continues to rise. Another factor is the steadily increasing ‘locality’ payments given to federal workers in higher-cost cities,” he says.

Edwards continues, “Rapid growth in federal pay also results from regular promotions that move workers into higher salary brackets regardless of performance and from redefining jobs upward into higher pay ranges. The federal workforce has become increasingly top-heavy.” In addition, “The structure of that workforce has also changed over time. There are fewer low-pay typists and more high-pay computer experts in the government today than there were a generation ago.”

A WSJ op-ed also notes that “many federal employees are in white collar occupations that often command high pay,” so that may account for a small part of the disparity.

The WSJ states that “one market test is the voluntary quit rate of these workers, and data for recent years show that rate for federal employees is only one-fourth that in private sector occupations. High-paying federal jobs are so coveted that they are now like rent-controlled apartments in Manhattan: Once you’ve got one, you hold on to it for life.”

It seems to me that there is something deeper behind a number of these phenomena. Edwards hints at this element when he notes, “Federal workers’ unions try to convince Congress that their members suffer from a ‘pay gap’ with the private sector.”

Labor union membership in the private sector has declined steadily and stands at about 8%. By contrast, in the government sector labor union membership stands at around 37%.

This is itself a huge disparity, and one that I would think has large effects on issues of pay, benefits, and job security. Thus, I think there has to be a link between the rates of union membership and compensation between the public and private sectors.

As Dr. Charles Baird notes in a radio interview (mp3), “In the government sector there is no declining unionism, none at all.” And given how good the compensation and security of the jobs in the government sector are, why should there be?

More at Chris Edwards’ related post on Cato@Liberty.