POLICY HIGHLIGHTER

Volume 14, Number 28
November 22, 2004

Iran, U.S. Navy focusing on core government functions

It's highly unusual to see Iran and the U.S. Navy being praised in the same sentence, but both are undertaking reforms by first focusing on core functions.

Iran looks to the free-market
Following the Islamic revolution of 1979, Article 44 was added to that country's constitution; it reads in part: "The economy of the Islamic Republic of Iran is to consist of three sectors: state, cooperative, and private, and is to be based on systematic and sound planning. The state sector is to include all large-scale and mother industries, foreign trade, major minerals, banking, insurance, power generation, dams, and large-scale irrigation networks, radio and television, post, telegraph and telephone services, aviation, shipping, roads, railroads and the like; all these will be publicly owned and administered by the State."

Article 44, combined with Article 43, essentially guaranteed a state monopoly for most sectors of Iran's economy; however, in efforts to improve its economy, Iran's top political body, the Expediency Council, passed a plan to rescind Articles 43 and 44. The Expediency Council said about this effort: "In order to bring about economic development and prevent further losses to the national economy, the government is authorized to cede large industries and those mentioned in articles 43 and 44 of the Constitution to the cooperatives and private sectors except for downstream oil and gas industries."

This means, for example, that Iran may soon have a privately run postal service, unlike the U.S.

By March of 2005, Iran is planning to privatize approximately $6 billion worth of industries currently owned and operated by the government. According to press accounts, Iran has already sold more than $1 billion worth of government assets.

While analysis of Iran's recent privatization reforms are by no means an endorsement of that country's government, it is telling that the benefits of free-market reforms can be acknowledged even by countries with anti-American bias and an anti-free-market tradition.

Navy contracting base housing
Another example of focusing on core functions can be found right here in Washington state at area military bases. Building on its highly successful contracting efforts for maintenance and facility operations at area bases, the Navy is now following the lead of Fort Lewis and contracting out maintenance and construction of base housing. Currently at the Bangor Naval Base, contracting of routine operations like industrial waste treatment, fire inspection and suppression, custodial services, vehicle upkeep, utilities and hotel operations, and design engineering has allowed base personnel to focus on their more primary duty: the operation of U.S. submarines for national defense.

Now the Navy is transferring maintenance of nearly 4,000 Northwest housing units to a private company that already oversees military housing contracts in New Orleans, San Diego and Texas. The Navy recently finalized a 50-year, $170 million deal with American Eagle, to oversee all aspects of base housing. This move will not increase the cost of housing for naval personnel as the Navy will adjust housing allowances by rank to equal the cost charged by American Eagle for rent.

Commenting on the Navy's base housing contracting plans, Rear Admiral Len Hering recently said: "A community housing manager can provide for [military personnel] what the Navy cannot . . . people will see a company that looks after every one of their needs . . . That's something the Navy will never be able to do because it has a mission requirement for that funding."

Purchase strategies
As demonstrated by the U.S. Navy and Iran, a government's obligation to ensure that certain core functions are delivered, does not mean that it has to make or deliver every element of those core functions. The question is whether to make or buy.

The Democratic Leadership Council also recently commented on this fact in its May 7, 2004, edition of Blueprint Magazine: "The fastest way to save money and increase value is to force public institutions to compete. Nobody who doesn't own one thinks a monopoly is good for business. Why should it be any different in the public sector? When Steve Goldsmith was elected mayor of Indianapolis during the last fiscal crisis, he decided to make public agencies bid against private firms for the right to continue delivering public services . . . Within seven years, competition saved Indianapolis more than $120 million."

Another example of a successful core function review can be found in New Zealand, which undertook similar reforms in the 1980's. By focusing on core functions and opening government services up to free-market competition, New Zealand was able to reduce the size of its government (measured by the number of employees) by 66 percent, while lowering the government's share of Gross Domestic Product (GDP) from 44 to 27 percent. Public debt was also reduced from 63 percent to 17 percent of GDP.

Conclusion
There is little justification for governments to provide services already offered in the market place. As such, while drafting Washington's 2005-07 budget, legislators should consider the reform efforts of the U.S. Navy, Iran and New Zealand, and determine what opportunities exist for similar contracting and/or outright elimination of state programs now duplicated in the private sector. This effort will be assisted by the fact that the majority of the collective bargaining agreements reached with state employees do not prohibit competitive contracting (with the exception of the higher education agreements). After all, if Iran can see the economic value of focusing on core functions, it should be considerably easier for Washington state officials to reach the same conclusion.

Prepared by: Jason Mercier | Budget Researsh Analyst | 360.956.3482

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org