The Economics of the Revolving Door--Posner

Articles by Eric Lipton in the June 18 and 19 issues of the New York Times discussed the "revolving door" phenomenon with specific reference to the Department of Homeland Security. According to Lipton, although the Department is only three and a half years old, already more than two-thirds of its senior executives have quit for jobs in the private sector, mostly working for companies that have or seek contracts with the Department, which has an annual budget of some $40 billion. These executives, some of whom had come to the Department from the private sector for brief stints in government sservice, are paid multiples of their government salaries when they leave to join or rejoin the private sector. Although departing government employees are forbidden to lobby their former government employer for a year, the prohibition is particularly porous in the case of the Department of Homeland Security because a former employee is permitted to lobby from the start any unit in the Department for which he did not work. The Department is a conglomerate of 22 formerly separate agencies, with overlapping responsibilities, and there are subunits with each of the agencies. Should the revolving door be stopped or slowed? Two considerations favor the revolving door. First, people who have served in government have useful information about government's needs and procedures; that information can enable a better matching of government contractors with the agencies that purchase their services. Second, the opportunity for lucrative private employment after a stint of public service reduces the cost to the government of obtaining able employees. The compensation of government employees includes not only their government salaries but also the enhanced private earning capacity that they acquire by their government service. But these points are persuasive only with regard to career government employees, in the sense of people who worked for the government--initially at least at a junior level--for many years. They accrue valuable knowledge over the course of their employment and the prospect of eventual private-sector employment substantially increases in real terms their meager compensation as government employees. Not that there isn't a loss; many of the ablest and most experienced government employees leave government well before normal retirement age, while the least able stay till or beyond that age because of the difficulty of firing government workers. The system can also produce transitional crises, as illustrated by the hemorrhaging of government security personnel in the wake of the September 11, 2001, terrorist attacks. The attacks caused a surge in private demand for security personnel, resulting in a sudden and substantial loss of experienced CIA, FBI, and other security officers to the private sector at greatly increased salaries. The increased ratio of private to government salaries represented a windfall for these officers because it had not been anticipated. In the long run, however, these windfalls become anticipations that will enable the government security services to hire abler people because they will foresee superior private-sector opportunities. In other words, as a result of the continuing concern with terrorism, working for government security agencies confers on one more human capital than before 9/11. Meanwhile, however, there is tremendous turnover in government security agencies, and a resulting decline in the quality of those agencies, as senior officers vacate their positions for the private sector and are replaced by inexperienced juniors. The impact on quality is aggravated by the disuptive effect of rapid turnover in any organization. The exodus of officials of the Department of Homeland Security for the private sector, about which Lipton wrote, is a distinct phenomenon. Many of them are people who had come to work for Tom Ridge in the White House when he was the President's homeland security advisor and went with him to the Department when it was formed in March of 2003 and he became the first head of it. Many did not have extensive or relevant government experience. Moreover, the Department has from the outset been grossly mismanaged. The fault lies mainly in the design and structure of the Department and in the haste with which it was created; but no one considers it, even given these constraints, a well-managed enterprise. The companies that have hired these officials do not care, however, because they are not hiring DHS officials for their managerial expertise. They are hiring them in the hope that it will facilitate the obtaining of contracts with the Department. The Department needs contracts, of course, and its former officials doubtless have a good sense of how a contractor can make an attractive pitch to the Department; otherwise the contractors would not have hired these officials at high salaries. But whether the officials are actually knowledgeable about the Department's needs is another matter. Many of them were birds of passage, who never became real experts on security. There is warranted suspicion that many of them got their high positions in the Department by reason of political contacts, and those contacts may enable them to land contracts for their new employers that are not in the government's best interest. So the first reason I gave for why "revolving door" practices may serve the public interest is probably absent in the case of senior officials. And likewise the second. The prospect of subsequent reemployment by the private sector probably attracts few able nongovernment people to government jobs. It is disruptive to give up one's private job to work for government for a short time with the aim of then returning to the private sector at a higher level--a level one might well have attained in the ordinary course of promotions and job changes had one remained in the private sector. Moreover, there is what economists call a "last period" problem that is more serious in the "bird of passage" case than in the case of the career government employee. An individual in the last period of his employment (or a company that is about to go out of business) is not restrained in his self-interested behavior by concern that his employer will fire him (or, in the case of the company, that its customers will desert it). Any government employee who has decided to seek private employment may be tempted to make decisions that will make him more attractive to prospective private employers; the added problem with the "birds of passage" is that their entire government service is last period because they know they are going to return to the private sector soon. All their decisions as government officials may be influenced by a desire to position themselves for as lucrative a reentry into the private sector as possible. What might be done to alleviate the revolving-door problem? One possibility would be to restructure the civil service so that it paid better and, as important, reached higher in the government system. In the United Kingdom, civil servants occupy the highest posts in government just below the ministerial level. The opportunity to become a permanent undersecretary is an inducement to the ablest civil servants to remain in government service for their entire, or at least a very long, career. In our government quite junior officials, such as assistant secretaries of department and even many deputy assistant secretaries, are appointed from outside the ranks of the civil servants. These are, many of them, the birds of passage; and the diminished promotion opportunities for the civil servants makes a civil service career much less attractive for able and ambitious people than it would otherwise be. The major exception of course is the military, a branch (realistically) of the civil service in which one can rise to a very high rank, because there is no lateral entry into the uniformed service. The CIA and FBI are other exceptions, since among their top officials ordinarily only the director himself is appointed from outside the agency staff. Of course there would be costs in strengthening the civil service--one being that the able people it attracts might be more productive in the private sector. But the challenges faced by the American government at present are so acute that we must take steps to improve governmental efficiency, and reform of civil service may be one of them.

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