May 28, 2006
On Privatizing Security-BECKER
Posner has a fine discussion that covers lots of interesting issues. I will try to extend the analysis in a few directions.
Private security personnel are used throughout the American economy. There are more than 750,000 employees of security companies, which exceed the number of state and local police. Private guards regulate admission to important buildings, such as financial centers, patrol neighborhoods, transport money and guard banks, watch customers in shops to discourage shoplifters and robbery, and offer other kinds of protections services. Their numbers more than doubled since 1990, and grew even more rapidly after 9/11, especially in cities like New York. Posner suggests there are about 25,000 private security employees in Iraq, which is only a drop in the bucket compared to the total number of private security personnel operating within the United States. Since private security companies are often hired for dangerous domestic activities, their role in Iraq is in many respects an extension of their domestic activities.
Israel's use of private security protection in dangerous situations is informative about the kind of responsibilities guards can have. Many suicide bombings by terrorist groups in Israel did succeed in terrorizing many Israelis. They became reluctant to use buses, go to restaurants and movie theatres- food take outs and videos increased a lot, and bus travel declined- and they reduced their congregation in other public places. To alleviate these fears, restaurants, theatres, buses, and other private businesses spontaneously greatly increased their use of private guards to search individuals who entered an establishment or bus, and to watch out for potential terrorists. Evidence compiled for a study of terrorism by Yona Rubenstein and myself indicates that private guards remained cheap despite the large increase in their numbers. They also helped thwart a number of suicide attacks, sometimes at the cost of their lives.
Although private security guards are relatively cheap in Israel, it is not difficult to understand why American security personnel in Iraq are much better compensated than soldiers who serve there. Most of these soldiers signed up when the threat of actually being sent to a dangerous combat zone was pretty small. So their pay was largely determined by other factors, such as training they would receive by serving in the military, their young age, the attractions of military life, patriotism, and so forth. After the Iraq war started they had no choice over whether they went there-if ordered to go they went. By contrast, employees of private companies are older and more experienced, and they have to be induced to go; financial inducements are an important part of the inducement package. Enlistments in fact fell after the war started, so the military then had to offer larger bonuses and other inducements to stimulate enlistments and re-enlistments. These higher military personnel costs are part of the estimates of the cost of the Iraq war by Bilmes and Stiglitz that we discussed in our posting on March 19th.
To my knowledge there is no compelling evidence that American private guards in Iraq have been likely to behave irresponsibly, cowardly, or use excessive force. The relevant comparison would be with the behavior of soldiers in Iraq, and I do not know of such comparisons. Posner quotes a U.S. general on the bad behavior of private security personnel in Iraq, but I would not put a lot of weight on the general's assertions. Most military officers prefer to have security forces under their command, so they are tempted to overstate the performance of their troops relative to that of private security personnel.
To be sure, the military has some advantages over private security forces since the military can impose discipline that is unavailable to private companies, such as military trials, imprisonment, court-martials, and other punishments. On the other hand, private companies are forced to compete against each other for the Iraq and other security business. Competition induces companies to screen their employees and fire the bad apples since the Pentagon will stop using companies that supply ineffective personnel, or personnel that brings bad publicity because of an excessive use of force and other misbehavior.
Incidentally, since I believe private security usually performs very well, I never was convinced by the arguments to federalize employees who search baggage at airports. Private companies would do the job better than a single (monopoly) government employer if the standards of performance were clearly set by the government agency in charge of airport security. As in other sectors, a considerable advantage of private employees over federal government employees would result from the competition of different security companies for the business of providing airport security. I would expect competition among companies to have produced more innovation and greater efficiency in airport security checks than we have received, or will get, with federal employees.
Posted by Gary Becker at 04:33 PM | Comments (5) | TrackBack (0)
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Now if only the UN, or a new, more practical organization, would start using PMCs in humanitarian operations.
Posted by Xenophon at May 28, 2006 05:36 PM | direct link
In the current environment on college campuses nationwide towards ROTC cadets and military recruiters, it would be very helpful if an open letter signed by famous economists of both parties documented how many dollars a U.S. military personnel in Afghanistan and Iraq earns compared to a private security contractor. Undergraduate students should know that individual Americans of their own age are paying a price in blood and dollars for the U.S.
Posted by Arun Khanna at May 28, 2006 08:24 PM | direct link
You state that private security would be better at airports. But this is a point that can be checked as we now have records of both -- govt since 9/11 and private before 9/11.
The evidence seems to suggest there is not much difference between govt and private airport security.
Do you have evidence to the contrary?
Posted by spencer at May 29, 2006 09:30 AM | direct link
private companies are forced to compete against each other for the Iraq and other security business. Competition induces companies to screen their employees and fire the bad apples since the Pentagon will stop using companies that supply ineffective personnel, or personnel that brings bad publicity because of an excessive use of force and other misbehavior.
This is a common type of bad libertarian argument. The form is simple. Identify one out of many competing incentives and argue that this will prevent bad behavior, or encourage good behavior, while ignoring the posibiltiy that it may well be outweighed by other incentives.
The Pentagon has multiple considerations in choosing contractors - cost, number and experience of personnel, speed of deployment, etc. The notion that "making sure the company sees to it that its employees comply with law in Iraq" will be a priority is simply not convincing. It is little more than an assertion.
Notice also that the comparison with private security forces in Israel or the US or elsewhere is irrelevant. This sort of private personnel operates domestically, hence is subject to ordinary domestic criminal law. The problem in Iraq, as both Posner and Becker recognize, is that jurisdiction over mercenaries is unclear.
Posted by Bernard Yomtov at May 29, 2006 11:26 AM | direct link
Several comments/points
1. You guys both missed one of the chief benefits to the administration of contracting out -- nobody knows how many private employees have died or been injured, so they don't count in the body count. Yet, this is a benefit more for the administration politically than for the country as a whole.
2. Not sure I see a parallel between a security guard in the lobby at your local 5-star hotel & contract employees paid 50K to drive a truck in Iraq, but I'll think about it...
3. A far cheaper economic strategy for short-term troops is a draft. There are good positive externalities here as well, as it would connect everyday Americans with the foreign policy of America. Now there is a bit of a prisoner's dilemma, as we can support war, and just pass the bill off to future generations w/ debt. We don't have to give up anything.
4. Clearly, the market for contracts in Iraq is fraught w/ massive amounts of fraud and is far from a perfect market -- see Haliburton. Especially given the long line of corruption scandals involving defense contracts and the current ruling party (Delay, Cunninghan, etc. etc. etc.). When bribery is so easy and rampant, there is no reason to think that contracts are awarded on a competitive basis. We have seen that defense contractors innovate by paying for golfing trips to Scotland, getting hotel rooms & hookers at the Watergate hotel, countless dinners at Signatures, buying yachts for Congressman, and/or hiding the bribery by simple ruses such as overpaying for Congressmen's houses. In stark contrast, I don't know of any instances of military generals engaging in the same kind of behavior. The contractors' innovations do not come in the form of a free lunch, however. If they are paying for hookers at Watergate (ala Brent Wilkes), it usually means that they are not paying for something else, and that something is usually the services they are to have contracted out for. I find it rather mysterious that both of you completely discounted corruption as though it didn't exist. The problem is incentives. If I'm a utility maximizing government official, I might be able to increase my utility by taking bribes, which are often difficult to see. The contractor, who has thus won the contract on a non-competitive basis, now has an incentive to slouch on the contract. Hence, contractors have a much larger incentive to cheat than say, a military unit who receives orders to do a certain project, say, drive a truck accross Iraq, who faces a court-martial if they disobey and whose salary is set.
Posted by doug at June 2, 2006 10:25 AM | direct link
