Oversight

Was the GSA scandal really scandalous?

Steve Kelman is professor of public management at Harvard University’s Kennedy School of Government and former administrator of the Office of Federal Procurement Policy.

I’d like to take a moment to reflect on a debate that is occurring at the fringes of the tumult over the General Services Administration’s conference spending. It’s an issue that is raised in enough contexts to make it worth talking about more generally.

Some observers have noted that the kind of lavish conference spending that got GSA into hot water is a common phenomenon in corporate America. Indeed, one wag noted that if the government really wanted to act like a business, it should do more GSA-style events.

The typical response is that when companies spend money on those kinds of perks, they are spending their own money, while GSA was spending taxpayers’ money, making the comparison is invalid.

The riposte about spending their own money would apply to executives of a company owned by an individual or a family. It is questionable, however, whether it applies to perks given at large, publicly traded firms. Managers there are not spending their own money, they are spending the shareholders’ money. And there is much academic literature on corporate governance arguing that it is often difficult for shareholders to monitor spending that managers claim is in the company’s interest but in reality might just be benefits taken at shareholders’ expense.

Because the sums involved could be rounding errors in the budget of a large corporation, it’s often not worth shareholders spending a lot of time worrying about. In addition, it is difficult for shareholders to get accurate information about whether the perks actually do improve morale, productivity and hence profits enough to justify their costs. Managers have much better information about such things than shareholders do, and it’s not easy to challenge their claims.

That brings us to a second point about the government/industry comparison. There might indeed be good business reasons for making such perks available at companies — namely that by improving morale, building team cohesiveness and making the company a more attractive place to work, the perks improve productivity and thus profits. If that is true, then the relatively trivial costs are justified.

However, that argument would apply to government as well. The only difference is that government doesn’t measure improved performance by profits but through productivity and the public value generated by agency activities. To state that perks are by definition unjustified because government doesn’t produce a profit is to overlook the possibility that they pay for themselves in some mixture of improved productivity and better service.

However, it should be noted that it’s not easy to prove the positive effects of perks in the private sector or in government. Indeed, it is the difficulty of proving their effectiveness that is behind shareholders’ concerns that perks represent an expropriation by managers.

I’m not sure whether perks at the level of GSA’s conference spending are justified in industry or government. I do agree with the notion that, when times are tough for a company, it is likely that there will be greater scrutiny of perks, and this should apply to the government as well. But I also believe that focusing only on the government’s lavish conference spending or other perks is a distortion of an issue that could be just as worrisome — if not more so — for the private sector.

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Reader comments

Wed, Aug 8, 2012

Well P Kaye you stated that "Federal government workers are leeches, feeding off the people who actually work and produce something". I served 10 years in the USMC, 2 tours in Iraq and 1 tour in Afganastan, Military members are Federal employees who "dont produce something" so I guess you would consider us as leeches as well. I now work for the VA assisting our disabled vets, but of course I dont produce anything so I guess I am still leeching in your eyes. Its rather sad that there are so many people like you who never sacrificed and who are always so quick to jump on the bandwagon to put down those of us who have and continue to do on a daily basis. Border agents, customs officers, DEA, FBI and ATF agents, Teachers, VA Doctors and Nurses, Scientists, Police Officers, Firefighters, etc, etc. All of these Government jobs keep you and your family safe and guess what "they dont produce something".

Wed, Aug 8, 2012 Audrey

In terms of government fraud and abuse, let's not forget the wind power industry. Here in the Pacific Northwest, we have cheap hydropower from dams built over 50 years ago and our low rates attracted Boeing, Microsoft, aluminum smelters, etc. That was real stimuls spending! Now GE is installing wind towers with government money, that occasionally produce power that government regulations require us to buy at very high rates, said power also gets GE tax credits (that's why GE pays no taxes) and if the dams have so much water they must generate power (spilling water over the dam top raises dissolved gas levels that kill fish)then GE is paid directly for the power the wind mills would have produced at their hightest rated capacity, even if the wind isn't blowing at that time. Now that is a sweet, sweet deal for GE who is very generous at campaign time and yes, the taxpayers are being...you know what.

Wed, Aug 1, 2012 Paul

Just to set the record straight with the last comment, I for one not only produce more than my fair share but in the process have saved thousands of lives and reduced the cost of doing so. Not many people in the corporate sector can say the same thing. There are useful jobs and useless jobs on both sides but grouping any of them together is the main problem. Just think, advertisers don't produce anything useful but we still pay the overhead that covers them. There is no such thing as a black and white issue here.

Tue, Jul 31, 2012 P Kaye

In response to the July 31 comment: 1. YOU ARE DEFLECTING BLAME. Some cabinet members have chefs, so GSA employees should be able to spend $800,000+ on conferences!!!! 2. You certainly make a compelling case for why taxes must continue to go up, up, up. The rich MUST pay their fair share. For what, GSA Las Vegas conference expenses, cabinet members' chefs, cushy retirements and health plans that the proletariats don't get? WUSA, Channel 9, has just uncovered today hundreds of millions of dollars in bonuses to GSA employees in 2011. I suppose for their stellar Las Vegas conference performances? You government workers and this administration JUST DON'T GET IT. We hear constantly that taxes MUST BE raised. Then we hear about GSA fraud, waste, and abuse. How much fraud, waste, and abuse goes on at the other agencies? Federal government workers and Congress are the one percent. And the worst is that they are leeches, feeding off the people who actually work and produce something.

Tue, Jul 31, 2012

I have worked for various government agencies for 25+ years. What the general public does not understand is that in terms of location for conferences, meetings, retreats, Las Vegas is the cheapest in the CONUS. The highest? Washington, D.C. The money that GSA spent, which was ridiculous, is a drop in the bucket when compared costs of other government agencies that you don't hear about. Why in the world would cabinet members have a personal chef? Why do members of congress have all these staffers, not only in Washington, D.C., but in their district offices whose salaries are paid by the government? They should not be chauffered around like they are royalty or celebrities, but drive their own cars, pay for their own gas, insurance, mail, etc. They should also not have access to retirement benefits. They are all millionaires, or close to it. The budget needs to be totally overhauled, no doubt about it, but start at the practical level and work your way up. Trust, me, millions of dollars can and will be saved. However, it will not happen because everyone from the President down to the newest elected congressman will not give up their perks nor anger those corporations who gave them umpteen dollars and other incentives to be relected. This vicious cycle will never be broken until the American people start some serious lobbying of their own and overhaul congress at election time.

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