Public Sector / Private Sector Firewall needed

One of the reasons we are in the financial mess we are in is that we have continuously grafted policies that work in the private sector onto the public sector, despite the fact the two sectors are fundamentally different.


The private sector harnesses our selfish instincts to generate economic growth and development.  Those selfish instincts are controlled by the market - if we get overly selfish, people don't buy our product or service, or someone else starts offering it a a lower price.  The private sector thrives on people who are motivated primarily by selfish interests, money, power, status.


The purpose of the public sector is to provide a stable environment in which the private sector can operate.  The public sector thrives when it relies on people who find reward in public service, who don't need a new car to impress their neighbors, or three vacation homes.


When we adopt concepts that work in the private sector as public sector solutions we end up with big problems.


In the housing sector Fannie Mae and Freddie Mac have cost taxpayers billions and played a major part in the 2008 financial meltdown.  It didn't have to be that way.  California ran a home loan program for veterans for years that worked well and cost the taxpayers little.  It was entirely a government program.  But when Congress created Fannie Mae and Freddie Mac instead of going with a purely government program it made it a public/private partnership.  So instead of providing stability when the private banking sector blew itself up with greed, Fannie Mae and Freddie Mac aggravated the problems.


A big part of the current financial problem for government at all levels is the unsustainable levels of pay and benefits for public employee's.  Public employee's have used private sector salaries to argue they should be paid the same amount as a similar position in the private sector.   But public employee salaries and benefits are not subject to the same controls as private sector salaries and benefits.  


In the private sector the employee is bargaining with a company that lives and dies by their bottom line.  Salaries are coming out of the pockets of the owners of the company in a very direct way.  Measuring success by the bottom line is relatively easy - if someone doesn't pull their weight it is relatively easy to spot.   So private sector salary ranges tend to be really broad - the most productive make lots more money than the less productive.   And if the private company really gets in over their head they can turn to bankruptcy court and get labor agreements set aside.


In the public sector the employee is bargaining with other public employee's, whose own salaries are probably going to be influenced by the decisions they make.  The deep pockets providing the money, taxpayers, are so far removed from the process they are virtually a non-factor.  The balance of motivations have proven to consistently align with continually increasing salary and benefits, with little understanding of the long term consequences.  That is aggravated by the fact there is no bottom line in the public sector.  Measuring productivity in public jobs is fiendishly difficult.  It makes no sense to import the broad salary ranges of the private sector into the public sector.  It is supposed to be about public service, not making money.


Public policy should build a firewall to prevent adopting policies that work in the private sector from being grafted onto the public sector.  Government should take salary bargaining out of the hands of other employees in the agency by developing salary ranges applicable to public sector salaries and benefits that are explicitly tied to the average private sector salary and benefits.  The salary ranges should not try to match specific private sector salaries for similar jobs and should contain limitations on maximum salary as a percentage of the average private sector earnings.  If you want to make lots of money as a bureaucrat, or a chemist, or a lawyer or whatever, go to the private sector.  Public service should be for those motivated by helping people, not by those for whom more money is a significant motivation.