Government Contracts Are Not Part of the Free Market

There are some critics of government who think that contracting out government work is a more efficient way of doing business.  Some even believe that having the government hand out contracts is a form of free market capitalism.

Of course, when government contracts are awarded, it is still using taxpayer money.  It is not as if consumers are freely choosing the services.

But while issuing government contracts has little to do with free market economics, there is a decent argument to be made that it can be more efficient than having government agencies do the work.  I suppose the next question is whether we actually want more efficiency in government.

It was recently reported that a security contractor has received a $190 million contract to do administrative work for the U.S. Citizenship and Immigration Services.

The company that received the award is U.S. Investigations Services LLC (USIS), which is alleged to have previously defrauded the government by performing insufficient background checks for highly sensitive government jobs.  This trouble began three years ago and the company was later sued by the Justice Department.

The company has also received some other bad press, as it was reported that USIS was in charge of the background checks of Aaron Alexis, the Navy Yard shooter, and Edward Snowden, the NSA whistleblower.

In regards to Edward Snowden, I suppose this might be one scenario where we should be happy that government contractors are not always efficient.  There are many other instances where we should be glad that government workers and government contractors are not efficient.  I do not want an efficient IRS.  I do not want an efficient NSA.


Just because government work is contracted out to the “private” sector, it doesn’t mean it takes the politics out of it.  Someone has to award the contracts.  Are we going to be so foolish as to think that there is never any kind of favoritism, for whatever reason?

I have no idea if there was any cronyism involved with this immigration contract.  USIS won the contract with the lowest bid.  Maybe it really was better than the alternatives.

Regardless of this one contract, we must realize that government spending is still government spending, even if it is in the form of contract awards.  And we should always expect that there is going to be favoritism.  Politicians and bureaucrats have friends.  There are usually lobbyists involved.  I’m guessing it is in a minority of cases where a contract is awarded solely based on price and quality.

If anything, cronyism will actually increase with more government contracts.  Most government agencies are bureaucracies.  Some of the employees may be very intelligent, but most of them are staying under the radar.  They want their funding to continue.  They want to make sure they collect their pension upon retirement.

The U.S. does not have a socialist system.  The government does not own the means of production in most cases.  It is more economic fascism.  It is corporatism.  The government is calling the shots in many cases, but there are companies making money.  Some make money by selling consumer goods and services that are in demand.  This is the capitalist portion.  Others make money through government contracts and through lobbying government for regulations to keep away competition.

Cronyism is not going to stop any time soon.  The only way it can be stopped or reduced is by reducing the power of the politicians in government.  This means reducing the funding.  The less money that the politicians can spend, the less that can be wasted.