Austerians versus Keynesians – MoneyWeek

It’sbadnewsforshareholdersinthesector。

Butit’sfantasticfortaxpayers。

I’veneverbeenconvincedbytheargumentthatspendingcutswouldbea‘bonanza’forprivatefirms。

First,itassumesworkwillbeoutsourcedratherthandelayedorevenabandoned。

Moreimportantly,ifmoney’stighter,thenoutsourcerswillbeforcedtoofferbetterterms。

Goodthingtoo。

AreportbyCompassManagementConsultinglastmonthreckonedthatpoorprocurementhasresultedinthepublicsectorpaying40%-plusovermarketratesforITservicesinthepastfiveyears。

AccordingtoProcurementLeadersmagazine,£6bncouldbesavedontheannual£14bnthegovernmentspendonIT“withoutaffectingfront-lineservices”。

AndasTheGuardian’sNilsPratleynoted,CWW’sprofitwarningshowedithadmade£20mprofitonjust£50minpublic-sectorrevenues–astaggeringprofitmargin。

Aswithmostpublicspendingoverthepastdecade,outsourcingmoneyseemstohavebeenspentwithscantregardforvalue。

Somearguethatthisisbecausecivilservantsarenaiveandhaveringsrunaroundthembypredatoryprivate-sectordeal-makers,withtheirsuperlativenegotiatingskills。

Nicetheory,butIsuspectthesamecivilservantswhosignedoffonthesedealsarealotmoreproficientattalkingdownpriceswhenthey’rehagglingoverahousepurchase,forexample。

Therealproblemistheskewedincentives。

Aprivate-sectorfirmismotivatedbyprofit–giveitthechancetomilkthetaxpayerandit’lltakeit。

Thepublicsectorisspendingsomeoneelse’smoney,withnorealstakeintheoutcome–sowhybotherseekingoutbettervalue?

ThisalsohighlightsaflawinthebigdebatebetweentheAusterians(whowanttocutspending)andKeynesians(whowanttokeepitgoing)。

Foralltheirbluster,neithersidesaysmuchaboutwhatthismoneyisactuallyspenton。

Butthisiswhatmattersmostofall。

Capitalismisatheartmeanttobeabouttheefficientallocationofcapital。

Andwhocanallocatemyowncapitalmoreefficientlythanme?

Ratherthanrampingupcentralgovernmentborrowingandspending,theKeynesiansshouldcallfortaxcuts。

Thatwouldmaketheirmessagefarmorepalatable。

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