Friday, May 25, 2007

which bus company should GCCS choose?

Is it a good decision for the GCCS to choose Illinois Central School Bus or Durham School Services—lower-cost providers of bus services from another state—rather than local providers?

There are two issues here: First, should the GCCS use the lowest-cost provider—in this case, saving about $200,000?

In choosing between companies with different costs and quality, there are four possible combinations. GCCS might choose service that is 1.) more expensive and lower quality; 2.) more expensive and higher quality; 3.) less expensive and lower quality; or 4.) less expensive and higher quality.

Governments are most famous for category #1—spending a lot of money and getting dubious results. For example, from $600 Pentagon hammers to pork-barrel spending, the Federal government is known for such inefficiencies.

Category #2 is also quite possible. Since bureaucrats and politicians are spending others’ money, it wouldn’t be surprising to see them spend “too much”, even if it is to purchase higher quality. The government is certainly accused of #3 quite often—that it doesn’t spend enough money and scrimps on quality. We’d all hope for #4, but how often does that happen?

So what will GCCS do? It’s difficult to know. In a competitive private-sector setting, the market usually takes care of this for us. Consumers divide themselves into #2 and #3—those who are willing to pay more money for higher quality (or not). Producers in category #1 are driven from the market and they have a tremendous financial incentive to pursue #4.

But in a monopolistic, public-sector situation, taxpayers and service recipients are left to take it on faith that their leaders are making the best choices.

Second, should the GCCS employ a company from outside of Southern Indiana (or the area or the state)? The primary argument here is to preserve jobs and economic activity in the area.

But if this is a good idea, it ought to be extended. No more electronics from Japan; no more furniture from North Carolina; and no more trips to Churchill Downs or Oxmoor Mall. If this is a good idea, then consumers in Southern Indiana should only be allowed to buy goods and services produced in Southern Indiana—to protect jobs and promote economic activity.

The term for this is “protectionism”. Nobody likes competition for that which they sell—whether education providers, bus drivers, sugar producers, or car manufacturers. So, it is quite common for producers to seek restrictions against their competition—and it is quite common for government officials to satisfy special interest groups. Such restrictions always benefit both of them at the expense of consumers or taxpayers.

Thus, one might easily expect the School Board to preserve the monopoly power of its bus drivers—whether it’s the optimal choice or not. (A bad sign: they have already re-opened the bidding process and then imposed a five-route limit—seemingly transparent efforts to stifle out-of-state competition.) But hopefully they will look beyond merely the narrow interests of the local providers to the interests of taxpayers and students and make the best choice on the merits of cost and quality.

This essay appeared in the Jeff/NA News-Tribune on Tuesday, May 29: