"It's Not Right To Make A Profit on Public Land"
The title of this post is based on the single most common complaint I get from government employees when trying to convince them to allow our company to operate their recreation sites. Let me retell probably my favorite argument I ever had on this topic. I will confess I cleaned up some of the verbiage in the retelling. I will further observe that our company soon after mysteriously lost the bidding for the renewal contract, just about the only time we have ever lost such a renewal in over 40 bids.
I was having a discussion with one of the many US Forest Service District Rangers who do not like having private for-profit companies operating on public lands, even if we save the taxpayer a lot of money by doing so. He said to me, "It's not right to make a profit on public land." I thought a minute and responded, "So you work for free?"
He looked at me confused, "What do you mean?"
I said, "well, if you took a salary, you would be making a profit on public land, wouldn't you? "
He responded that "this was totally different -- a salary is not the same profit. And besides, my salary is nothing like your huge profits."
I said, "Are you kidding? My profits on this District are less than half your salary. And you earn your salary whether visitors are happy or not. Your salary is guaranteed and unless you are caught having sex with an eight-year-old on your desk, you probably have it until retirement. My profit is never guaranteed -- I might make it or I might not. And getting that profit requires investment of tens of thousands of dollars in trucks and such. And if I don't do a good job, customers stop showing up and I don't make any money at all."
He responded, "but your profits just add cost. A non-profit doing the same thing, or the government doing the same thing, would save that money."
I said in turn, "that is incredibly naive. What I do is operate efficiently and at low costs. So a non-profit or the government does NOT do the same thing, because without the incentive to make a profit they don't operate anywhere near as cost-effectively. I have never seen an example where the government could operate for less than twice my costs. So our company can save half the costs of operating the park, which dwarfs the size of my 5% profit margin. The savings I produce are 20 times my profit -- if anything, I am grossly underpaid.
Thane_Eichenauer:
The hate of profit is strong in this Ranger.
September 29, 2015, 11:16 amMercury:
Great couple of posts.
The ultimate "non-profit" scam is the American college and university system. Several generations of (mostly) political leftists have overseen and nurtured the growth of a massive, self-serving apparatus that not only falls short on academics but is increasingly unaffordable to American kids of average means.
September 29, 2015, 1:32 pmSTW:
No one like it when I point out that everyone (in the US at least) works for a profit. And of course non-profits work for a profit. They close up shop if expenses exceed revenues. Non-profits just don't pay taxes on that profit. They should probably be renamed non-taxpaying. The ranger obviously works for profit and like a for-profit company, pays taxes. Idiot.
September 29, 2015, 2:32 pmMatthew Slyfield:
"And of course non-profits work for a profit. They close up shop if expenses exceed revenues."
It is true that a non-profit will close if expenses exceed revenues, most do not work for a profit. They are usually trying to break even (expenses = revenues) rather than achieve a profit (expenses < revenues)
While there are a few operations registered as non-profits that do generate expenses < revenues they are a tiny minority.
September 29, 2015, 2:53 pmZefal:
Envy or guilt of being better off is at the root of all socialists. Doesn't matter if free market generates more wealth across the board, it's the disparity they don't like. If you are one of the guilty feeling ones it usually means attempting to make everyone else besides you less well off.
September 29, 2015, 4:26 pmPA32R:
That's because they allocate the income to the task that they're allegedly doing, and expense the remainder as salaries for the directors, etc. It's easy not to make a profit, simply bonus the amount by which revenues exceed expenses, mission accomplished.
September 29, 2015, 5:38 pmJohnM:
This is all around the idea of "fair" price
In the USSR they had committees that determined the correct price for everything that might be bought. This is because they believed in the "labour theory of value" - the idea that the value of a product was equal to the amount of labour required to produce it. If a product was sold for a profit then the labourers were not being given the full amount to of their labour value. Ipso facto the capitalist was stealing the excess labour value.
If this is your core belief then there is no way you can look at campsite A run by the state, versus campsite A run by a more productive private operator dispassionately. You don't see the cost, just the profit. Though they see profit as an immoral cost they cannot view the inefficiency of the state run alternate as equally immoral.
September 30, 2015, 1:21 amslocum:
An impeccable argument, and yet I'd guess you probably made no dent in his worldview. People like that simply do not care if a for-profit company can run a better operation at a lower cost and make for happier campers. In his view, public parks are a sacred space and for-profit operations besmirch it. To him, it would be a little like bringing in an efficient for-profit company to provide services in Catholic parishes that cannot support their own priest (and, yes, I think many park personnel actually do think of themselves as part of a priestly class protecting sacred spaces. Only duly consecrated forest priests, wearing the clerical khaki, should be allowed to do those jobs).
This is the second time I've posted a link recently to Jane Jacobs' somewhat obscure 'Systems of Survival', but I think it applies here. The anti-profit park folks are members of Jacobs 'Guardian Syndrome' and feel superior to members of the 'Commerce Syndrome' (which, of course, includes for-profit companies):
https://en.wikipedia.org/wiki/Systems_of_Survival
It's the same mentality that finds the idea of for-profit schools, prisons, and hospitals abhorrent (regardless of whether or not they're more efficient). It's the same mentality that lead the U.S. Forest Service to try to ban unlicensed commercial photography last year. Given this, what would I suggest? It seems crazy, but I'd say to avoid leading with efficiency and quality arguments when dealing with people like that -- instead emphasize what an honor it is to be allowed to work in such sacred spaces and alongside people who've dedicated their lives to their protection. Maybe do the 'Whole Foods' thing and donate a fraction of your profits to, say, environmental education programs.
September 30, 2015, 5:10 amDaublin:
It's true, but there's a more subtle problem here. A price can look fair if you just show your list of costs, and yet still be too high. That's precisely what happens in the situations Warren is describing: a non-profit has little incentive to improve its procedures, so it will gleefully do things in a stupid way and pee away money in all kinds of unnecessary ways.
You get better results when there is a friendly competition among possible providers of a service. That's all that a market is: a set of rules for friendly competition, where any pairing can be broken off at any time. It's more of a dance club than a marriage for life.
September 30, 2015, 5:14 amDaublin:
A wonderful post, one of those things well worth emphasizing over whenever someone opens their mind enough to ask how you could actually think the way you do.
I count three arguments there, so you could pare it down if you could pick just one of them to especially focus on. By my count: (1) profit is morally the same as a salary, (2) profits are tied to performance, and (3) for-profit companies tend to be much more efficient.
Of them I'd leave off the third for sure--people will just assume that you save money by cutting corners. Maybe focus on (2). It's obviously bad for the pbulic if you use past costs as the measure for future costs. What the public wants and deserves is to have a friendly competition among those people who provide public services. More bidding, less hiring of cronies.
September 30, 2015, 5:20 amJohnM:
I'm not defending the idea. The idea of an "objective fair" cost is nonsense. It's subjective. If I want to sell something and you want to buy and we agree a price, it must be fair. The Labour Theory of Value is nonsense.
September 30, 2015, 5:51 amDerKase:
The US Forest Service already condones massive private profit from public land by leasing land for timber, mining, grazing, and many other purposes. Does anyone in the Forest Service think any of those leasing companies are making only a 5% profit margin? The amount charged for most leases is ridiculously small--pennies per acre.
September 30, 2015, 6:31 amDirtyJobsGuy:
I seem to recall that once (not too long ago) the Forest Service made good money from logging (as intended in their congressional charter) that subsidized other recreational uses. Now that the Greens have severely limited logging, not only is FS income down but government jobs that used to manage this logging are down too. I suspect it would not be wrong to say their is a lot of empire preservation going on here.
September 30, 2015, 7:46 amAlso I suspect any income from concessionaires is siphoned off to other money sinks. Your FS guy talking about profits off of public land would be more than happy if they could keep that budget in their own hands.
Guest:
Salary would be revenue - not profit. After you deduct his living expenses (housing, food, transportation, retirement, etc. are all reasonable business expenses) you would likely be left with fairly little "profit".
Are you including contracting overhead in your cost (to the government) analysis? There's an awfully large bureaucracy dedicated to contract administration and oversight - I don't know the numbers, but to not factor in something is unfair. As anyone who has ever contracted out anything knows, it's never a sign and walk away deal.
September 30, 2015, 8:40 amrambler:
When there is no competition, there is no need for efficiency, lower costs or customer satisfaction. The only thing that matters is that the employee is happy and the gov has an endless supply of money to spend.
September 30, 2015, 11:44 amkjeldermand:
In our local forest, there hasn't been a timber sale in more than 20 years. Other than placer exploration (gold panning) permits, I don't know when the last time a new mine was permitted, but probably in my grandfather's day. And all of the grazing rights are old, legacy rights that the USFS is basically forced to renew each time they come up. Normal people used to be able to lease a site for a recreational cabin, but the .gov has been eliminating the existing leases for decades now -- forget about trying to get a new one. Sometimes you can get a special use permit for something like a cell tower (there's a huge public safety reason to grant those, after all -- plus, agency folks like it when their phones work), but the kinds of things that will get permits are getting pretty rare. Even public goods like schools, water systems or sanitary landfills can't get any traction.
Anything where the agency has a say in how it is permitted seldom makes it through the process -- either agency personnel kill it internally or, if they can't bend their policies enough to deny the permit, the conservation groups litigate it to death. There are staff at USFS and BLM who have gone 10, 15, or even 20 years without ever seeing a permit application reach successful completion and issuance. Sadly, most of them think this is a feature, not a bug and any agency personnel who remember the old days with approval are gearing up for retirement.
September 30, 2015, 1:11 pmPaul A'Barge:
Shut down the US Forest Service, fire all their employees and put up all public land for bid-purchase to become private land.
September 30, 2015, 1:20 pmvikingvista:
One of the great embarrassments of modern education is the huge number of educated people who think market profits are a cost rather than a share of cost savings.
September 30, 2015, 1:25 pmbigmaq1980:
@Warren - heard similar sentiment, when a (one of the few good hardworking ones, no less) government employee told us that a business case is "not needed for everything", but that we just need to do "what is right" regarding a particular technical issue.
He had no response when asked "by what objective measure are we to judge what is right?" as the issue was "not a safety one, nor a legal or compliance one".
Beyond that, it was explained to him that the only measure that matters is what is the most efficient means to deal with the particular issue. Alternatives are usually evaluated in terms of dollars (since he has a fiduciary duty to spent taxpayer money wisely). And, THAT is what a business case is all about.
September 30, 2015, 6:10 pmrambler:
I think "wisely" means more along the lines of spend what is necessary to ensure the survival of their jobs.
September 30, 2015, 6:22 pmsgthwjack:
Why not a profit? The government does it every day, with an astronomical margin, utilizing their accounting "standards." .
September 30, 2015, 6:42 pmrambler:
Brought to us by the "we'll hike taxes" school of economics.
September 30, 2015, 6:44 pmsgthwjack:
Yup, simply another gang with badges and guns. Have to keep up appearances as it were.
September 30, 2015, 6:54 pmGeralt_0f_Rivia:
That's why politicians generally hate free markets. The free market is an efficient provider of goods, services, and jobs, and allows people to climb out of poverty by their own merit. This is antithetical to gov't because it shrinks dependence, and in turn, gov't power.
September 30, 2015, 6:57 pmGeralt_0f_Rivia:
You misspelled mafia. ;)
September 30, 2015, 6:58 pmsgthwjack:
Capone could not have imagined anything on the scale of the DC cartel. Why, they even have their own black robed "Priesthood."
September 30, 2015, 7:08 pmbigmaq1980:
"'wisely' means more along the lines of spend what is necessary to ensure the survival of their jobs."
In this case, the man wasn't like that. He was one of the old school few who worked very hard.
As a general rule, perhaps. That kind of thinking morphed in the subsequent generations to be more self serving.
October 1, 2015, 6:47 amJohn the River:
Next time, shrug... and say "I'm just doing my job". And leave.
but you knew that.
October 1, 2015, 1:57 pmThane_Eichenauer:
I disagree. For the Ranger to suffer from envy he would want to have what Coyote has, he does not. I don't see how guilt would apply. The Ranger clearly has an irrational reaction to a private operator simply due to how his organization is structured regardless of the clear positive outcomes and would rather it not be permitted to operate.
October 1, 2015, 2:57 pmjohn:
Do you recall how incensed the Left was when Chicago School economist Milton Friedman got the Nobel prize for his work in THE REAL WORLD in Chile? He was a free market guy, and took Chile from economic failure to a booming economy and the Left hated him for it.
October 1, 2015, 8:13 pm