The late Nobel-prize winning economist Milton Friedman once famously observed: “Nobody spends someone else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own.”
A report recently released by North Carolina State Auditor’s office serves to further confirm this truism. The report examined the N.C. Department of Administration’s methods of purchasing goods and services used by the various agencies throughout state government. The Department utilizes a computer program, called NC E-procurement, to purchase their needed items from selected vendors.
Unfortunately, the audit found a number of flaws in the Department’s use of the program. Primary among the glitches is that many goods that the state purchased have several different approved vendors offering their products at different prices. This caused state workers to not buy from the lowest-priced vendor in many cases.
The audit cited several examples where taxpayer dollars were squandered because of this shortcoming. For instance, the auditors discovered purchasing discrepancies for printer toner cartridges. More than $41,000 was unnecessarily spent by agencies purchasing new cartridges for $120 a piece, rather than buying less-costly remanufactured cartridges offered at $28 a piece.
In another example, the audit found two separate state-term contracts with vendors of Dry Cell Batteries, both at different prices. Because state agencies often purchase from the higher-priced vendor, the state overpaid $1,200 on batteries during the fiscal year being examined.
The audit reveals what is obvious to most observers: someone spending their own money would have done due diligence to find, for example, toner at the much lower price. But state employees are spending other people’s money so there is very little incentive for them to be frugal.
The timing of the audit’s release, however, may have some positive consequences. Democratic Gov. Bev Perdue is scheduled to announce next week plans to consolidate and otherwise reform state government agencies and responsibilities in order to better balance the coming $3 billion to $4 billion state budget deficit next year.
Perdue’s office seized upon the audit’s findings as an opportunity to signal their intent to privatize the state’s procurement system.
“As we are looking to change the way state government does business, this is something she is leaning towards,” said Perdue spokesman Chrissy Pearson.
That would be a positive step indeed, but North Carolina state government needs to go much further. Recognizing Friedman’s words and acknowledging the unavoidable inefficiencies when people are spending other people’s money could better lead to true transformation of government and society.
Whether its schools, roads, health care, support for the poor or cultural amenities like museums and parks; when those in charge are spending other people’s money citizens will get less bang for the buck. To see the most efficient use of scarce resources, there should be a seismic shift in financing for such programs away from government bureaucrats back to individuals spending their own money in the best way they see fit.
When taxpayers subsidize something to be administered by the apparatus of government, waste, bloat and inefficiencies are bound to be abundant. There is no effective feedback loop telling state agency heads whether or not they are doing a good job as stewards of tax dollars, because their funds are acquired from taxpayers by the threat of punishment.
Conversely, privately run organizations funded by voluntary contributions or transactions must offer something in return that citizens value, or else their funding will be cut off. This knowledge creates incredible incentives for these organization heads to take great care to efficiently allocate their finances, an incentive not faced by government agency heads.
Here’s hoping that the Perdue administration begins to recognize this fact, and finds ways to minimize the size and scope of North Carolina state government so that citizens can regain control over a greater share of their money.
This article was originally published in the Lincoln Tribune on November 18, 2010.