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Snowden Affair Reveals Dangers from Privatizing Government Services

“NSA Headquarters, Fort Meade, Maryland” from the Wikimedia commons. This file is in the public domain in the United States.

(Analysis) Edward Snowden, an employee of Booz Allen Hamilton doing contract work for the US intelligence agency NSA, recently fled to Hong Kong with sensitive and classified data. He is reported to be destined for Ecuador, where he will presumably receive political asylum. Snowden has revealed information to the media – and potentially to foreign governments – that is embarrassing to the government of the United States. Rather than focus on the currently hot topics of privacy and whistle-blowing, this analysis concerns itself with outsourcing, or privatization when it is done by government.

Outsourcing has become a popular strategy pursued by management, both within government and in the private sector. Privately held companies pursue this strategy in the belief that they can become more profitable by focusing on their core strengths, turning other functions deemed nonessential over to outside contractors. For example, many companies today outsource the function of human resources to other companies. This trend is a boon to lackluster managers, because it reduces their risk of failure (costs are only of minor concern to managers, since management is not identical to ownership of a company). The principal-agent problem manifests itself in many ways within the corporate world.

This phenomenon of outsourcing is also pursued by government managers, for the similar reason of reducing risk to their careers. In the wider realm of public policy, it is supported by the notion that in some areas the private sector is somehow more efficient than government. The extreme version of this argument is that the private sector is always more efficient than government, so government should be radically pruned. The Snowden affair reveals a flaw in this reasoning.

Professional government employees are traditionally motivated by public service, through alignment of their interests with the government’s. Since the salaries government workers receive are generally less than salaries received for similar skills/qualifications in the private sector, job security is often a compensation for reduced lifetime earnings in government. This bargain serves to align the interests of government employees with the mission of government: public service.

Privatization of government services severs this alignment of interests, however. A private contractor is most definitely motivated by money, not by the public interest. This fact is important to understanding how a private contractor with Snowden’s minimal credentials ends up in a position capable of doing what he did. As a civil servant, he would not have been in a position to obtain the information that he did, because he does not have the formal educational prerequisites for such a position. Just being a technically inclined individual does not mean someone has the general educational background to understand how their work fits into an organization, let alone into wider society. But to a private company like Booz Allen Hamilton – out to take as much revenue from the government as possible – educational requirements can be waived in order to fill one specific task. In some sense it is short-term task orientation trumping long-term requirements for a well-functioning organization.

In short, both government administrators and the wider public should rethink the cost-benefit calculus from outsourcing of government services to the private sector. The benefits from receiving short-term task completion might not outweigh the long-term risks to public policy. Private companies would do well to reexamine their outsourcing efforts as well, for they are inherently threatened by both potentially embarrassing media stories and industrial espionage, risks that are elevated through outsourcing. Again, what we have here is a need to correctly balance the short and long terms within an organization, but the private sector appears to be currently failing to achieve this balance.

When the dust finally settles – whether or not Snowden is judged to be a villain, a hero, or neither – the issues about privatization of government services laid out in this analysis will remain. The next time a private-sector contractor leaks sensitive and classified information, s/he could be a stooge for any anti-US organization, whether a hostile foreign government, a foreign company seeking competitive advantage, or a more nefarious organization seeking to do violence. It would be best if we had an adult conversation about these risks now, rather than later (too late).



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