Federal Contracting and the DC Boom

Time Magazine on the economic boom currently happening in Washington, DC:

Yet the diversity of the Washington economy is an illusion, for each of its business sectors is to some degree a creature of the region’s single great industry—the federal government. According to a 2007 report by the Tax Foundation, for every dollar in taxes Washington sends to the federal government, it receives five in return. Fuller says that over the past 30 years, the federal government has spent $860 billion in the D.C. region, two-thirds of that since 9/11.

Why the boom? The size of the nonmilitary, nonpostal federal workforce has stayed relatively stable since the 1960s. What has changed is not the government payroll but the number of government contractors. It’s estimated that, thanks to massive outsourcing over the past 20 years by the Clinton and Bush administrations, there are two government contractors for every worker directly employed by the government. Federal contracting is the region’s great growth industry. A government contractor can even hire contractors for help in getting more government contracts. You could call those guys ­government-contract contractors.

Which means government hasn’t shrunk; it’s just changed clothes (and pretty nice clothes they are). The contractors are famous for secrecy; many have job titles that are designed to bewilder. What is it, after all, that an analyst, a facilitator, a consultant, an adviser, a strategist actually does to earn his or her paycheck? Champions of the capital’s Shangri-la economy like to brag of ­Washington’s knowledge workers.

Who are these crazy contractors? Well, the Healthcare Economist of one of the people benefiting from the federal government contracting boom. Although not located in DC, the Healthcare Economist is employed by a health care policy consulting firm who provides quantitative analysis for AHRQ, CMS, DOJ, FDA, MedPAC and other acronyms.

I believe that allowing the government to contract some work to outside consultants provides a fresh perspective on many problems the government faces. Contracting has three main drawbacks, however: i) the federal government loses human capital since its own employees have less direct involvement in its own projects, ii) contractors typically have less institutional knowledge than government employees [although due to extensive contracting, some contractors do have extensive institutional knowledge], and iii) contracting is expensive.

Thus, the question isn’t whether or not federal government contracting should occur; its whether too much is occurring.

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