The 36th District Democrats held a post legislative session debriefing last night with party activists. After the formal discussion, I had a thoughtful chat with one of our state’s most influential labor lobbyists about the 2010 legislative session.

One of the things she graciously asked me to do was outline my thinking in a more systematic fashion about outsourcing. The central tenet of her question was this: Is there a philosophical and policy foundation to my views in this area? Given my open discussion of the issues, do I support outsourcing or privatization in all cases or limited? Why?

It’s more than a fair question, it’s imperative to discuss openly. I’ve written about this topic before on myballard.com and elsewhere but wanted to address her question here as well.

This year I actively supported legislation to outsource the state printing office. I supported additional legislation with a bit less vigor but still openly to contract an additional 20 underperforming (ie losing money) state liquor stores. This is a practice actively utilized today but this bill would expand it further.

First and most importantly, I deeply appreciate the frustration that many fellow progressives feel privatization or outsourcing is really a cover for an anti-state employee strategy. It implies state employees are somehow unable or unwilling to efficiently deliver services. That is not inherently the case, of course, just as it is not automatic that private sector folks are more efficient or effective. As a businessman and a legislator, I know that there is no monopoly on efficiency in either the public or private sector. To pretend otherwise is simply ridiculous.

I’ve argued for a progressive approach to government reform. As a part of that deeper dialogue, we need a progressive approach to the privatization of public services, not an automatic reaction for or against in all cases. The subtly is important.

The very idea of privatization of services should not be viewed as anti-government, anti-state employee, anti-public service. The very idea of spending valuable tax dollars on real people living real lives is pro-government, pro-state employee, pro-public service. I want to spend money on real people not back-end systems where we pay value-add prices for commodity services.

The idea of privatizing social security, public access to water rights, key military functions, foster youth oversight and other high value programs is truly a violation of our nation’s fiduciary public obligations to taxpayers and citizens. The ugliest example of all? Blackwater.

But some of the deeper, more holistic and thoughtful questions at the state level follow these lines: What is the highest value role for state employees regarding service delivery? When is the profit motive (ie outsourcing or privatizing a service) a violation of the state’s fiduciary moral obligation to citizens? When can harm come from letting oversight of service delivery take second place to cost? Can we stop paying such a high price for low cost services? Do state employee-based services that may still be commodities add intangible value that should be captured? (such as jobs!)

The philosophical and policy foundation of my policy position is that as a general statement state government should not be in the business of delivering most commodity services. For example, the state purchases billions of dollars worth of concrete, steel, wood and other commodities for construction. Yet it would make absolutely no sense for the state to be in the concrete, steel or wood business. It’s just not a core competency. Cruise ships purchase more steaks than anyone else in the world, but they don’t go into the slaughter and meatpacking businesses.

We need to use our bulk purchasing power to get a smoking hot deal for taxpayers on commodities so we can redirect those dollars for value-add services. But none of it can be done in the dark.

The state printing office is another good example. We have thousands of small printing businesses statewide. What would the price and quality level be for state printing jobs if there was constant, aggressive competition for that extraordinary amount of business? We would pay less for taxpayers and yet receive higher quality products. This is not an insult to the people of the printing office, it is a reflection of the passion and energy of the marketplace that is constantly evolving if a customer as large as the state made its business more available to small companies statewide.

And it impacts how we look at systems change. Under our current model, the truth is we have very little incentive to go entirely paperless as a state–requiring almost all services to be delivered on line. The reason? The state printing office relies upon more and more printing. And yet I’d argue we want to lead the innovation of non-paper based printing. We want to make printing obsolete and when we are in this business we are less likely to do so.

In terms of liquor stores the story is much more complex due to the massive externalities of alcohol-related costs to society. Like others, we as a state are hypocritical in that we do not want to encourage drinking yet we rely upon the revenues generated and seek to increase tax collections in this area. We have had a policy since prohibition ended of a state monopoly to keep management of alcohol under control. Does that work? I don’t know for sure, but I do feel that having state employees manage the operations is by its nature a commodity service. I question the unique, incremental value even though I truly accept the strength of the argument that state employees deliver high quality service in this area providing more than $300 million to the state coffers. It’s a tough one and I’m continuing to learn more.

In technology the private sector is unquestionably more effective, efficient and cost-sensitive. The public sector’s slow embrace of cloud computing service at a time when we are seeing a march from the private sector worldwide to reduce storage costs and improve quality is just one example. There are many more. The $300 million state data center’s construction without so much as a legitimate financial plan behind it further shows the lack of market pressure to make truly independent, objective technology decisions.

Can state employees perform a service for less cost since they don’t have the profit motive and don’t need to constantly deliver marginal savings? Yes. But can the marketplace improve quality and lower costs due to the insatiable need for innovation? Yes.

The larger systems challenge, of course, is to get the lower price along with the quality innovation. Never easy to do. But the bottom line is that when it comes to back-end, commodity services where efficiency really matters to reduce marginal costs the marketplace of the private sector is–in my view–going to be more successful than government.

In many ways my philosophical grounding in using the private sector more forcefully for back-end commodity services is driven by a belief that I want state employees overseeing the safety of foster youth and other fiduciary obligations where a profit motive is of no meaningful value to society. I want to use those tax dollars not to pay for back-end, commodity services like hosting servers but to send students to colleges, support foster youth, improve our schools and much more.

The great challenge of leading our state is to find ways to get the best of both worlds: The fiduciary oversight of dedicated public employees doing high value people-oriented work along with the innovation and cost controls of the marketplace.

Your partner in service,

Reuven.