Public Labs Cheaper? Rubbish!

Judy Darcy, chief Pooh-Bah of the Canadian Union of Public Employees in these parts is cutting a wide swath through the territory of the private labs who provide most of the medical testing in BC. According to Darcy, the private labs make a profit of $25 million and therefore if the government takes them over, the people of BC will get all their lab tests done for $25 million less. The apparently impeccable logic of the argument is that the saving will come because governments don’t have to make a profit.

Before you buy Ms. Darcy’s argument, consider what else CUPE has sold us that smells funny—garbage collection.

In many towns and cities across the country, CUPE used to pick up the garbage. The workers did so as municipal employees. They retained their dominance in the garbage collecting business by making arguments much like the kind being made about the labs. The argument was that to collect garbage takes equipment and labour. The cost of equipment would be about the same for government and the private operator. Likewise, labour would cost the same—unless, of course, some private collector paid its employees something akin to slave wages. And then, in addition to these costs, the private operator presumably had to earn a profit.

Under these conditions, so the argument went, the government could collect garbage more cheaply since it didn’t have to make a profit. Or, the private operator could only offer the service more cheaply if she paid her workers the aforementioned slave wages. Thus, public garbage collection is better for society because it eliminates private sector profits earned at the expense of workers.

Confronted with this argument, understandably there were not many town or city councillors willing to make the case for private contracting out of garbage collection. But, fortunately, some brave souls did. So when Professor James McDavid, then in the School of Public Administration at the University of Victoria, set out to compare the efficiency of public and private garbage collection, he found a wide range of experience. What he discovered is quite germane to the current debate.

The evidence showed that public sector performance, was, well, garbage. McDavid discovered that private operators who employed unionized workers (clearly not the aforementioned exploitable “slave labour”) were able to supply garbage collection at 40 percent less cost than governments employing CUPE workers. How could this be?

The explanation lies in the higher productivity of the private workers—most of whom were members of the Teamsters Union—compared to the CUPE workers. While an average public sector worker picked up .62 tons per crew person per hour, the average privately employed worker picked up 1.24 tons in an hour—twice as much! This huge difference in productivity was enough to pay union wages, pay for the equipment, and pay the private contractor’s profits.

The reason private garbage collectors are more productive is that they organize the collection process differently than do the public providers. It is not necessarily the case that CUPE workers are individually less productive, rather, the government system in which they operate is. And what McDavid has found for garbage, other researchers have found for other services ranging from airlines to satellite telecommunications.

Of course, medical labs are not garbage collection. But from an economic viewpoint, the services are similar enough to conclude that the notion that government labs run by CUPE are going to save the taxpayer money really is a pile of garbage. In fact, the lab system is one of the few components of the health care system which at the moment works reasonably well and where waiting times are tolerable.

We can predict with some confidence that either public labs will be more expensive to the taxpayer, or that the quality and level of service will deteriorate. You can bet that we will be watching (and sniffing).

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Last Modified: Wednesday, October 20, 1999.