Several of the comments on my post about the DMV recommend privatization (or outsourcing) DMV functions, as though those described a binary choice. They do not. Every production process of a government good or service is a chain of steps (actually, a tree-like set of converging chains) beginning in the private sector (labor is always a set of private sector enterprises) and ending in the public. Usually each chain has one link where intermediate goods cross the public-private boundary, and privatization only means moving that boundary closer to the end product. It’s much more continuous than binary; a government armory can buy rifles ready to shoot from a private firm, buy parts to finish and assemble, buy logs and steel to mill and forge and machine, or even buy an iron ore deposit and a coal mine and really make guns “from scratch”. DMV office buildings and furniture are universally privatized (no DMV has carpenters or cabinetmakers on payroll) training its employees can be partly (K-12 education and college) or almost completely outsourced (on-the-job training contracted out to consultants rather than internal). It hardly matters to the DMV customer experience whether the license plates are made in prison or Joe’s Metal Stamping shop, or whether the prison is managed by Wackenhut or the Dept. of Corrections.
Simply moving the contract boundary toward the product end buys nothing as a general rule, and can be quite dysfunctional; the trick is to find the place where it’s most useful to have control exerted through a contract rather than through internal administrative procedures, and the right place is different not only for different products but also for different governments and agencies, even different DMV’s. The contract relationship has distinctive features that bear on this decision. For example, it forces the procuring agency to set down in writing exactly what is being bought and to examine the delivery for compliance, and it forces a cost measure difficult to assess at internal boundaries. Sometimes it allows the chain to be easily disconnected from a supplier source and connected to another, and it always prevents influence on upstream agents through informal guidance, pay adjustments, and firing. There’s more; it’s complicated. Bob Leone, Marc Zegans and I explained this twenty years ago here .
“Outsource!” as a management principle for government is vague in meaning and far from a universal prescription. Nor is this only about simple measures of efficiency; I was surprised at the one commenter’s approval of first-class DMV service sold for a premium price. Maybe, but this seems worth a little thought. Should neighborhood policing be auctioned off as well? A jury trial only if the defendant is willing to pay the jurors a market-clearing daily rate? Written comments on student papers beyond a letter grade provided (by me) only for an extra tuition fee? Office hours in groups on seats in the gym, $25; one-to-one in my office with coffee, $250? I love markets, but DMV’s functions are coercive and regulatory, and they represent the dignity of the state and the State; I’m not sure I want them sold at a Walmart counter, even with no waiting and a big smile.