THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Saunday, May 19, 1996 TAG: 9605180407
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SERIES: The Military Goes Into Business
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: Long : 130 lines
Outsourcing sounds innocent enough.
A company hires an outside firm to provide some service that it used to do for itself, such as payroll or data processing. That frees the company to focus on what it does best, its core business. Plus, the company cuts costs while getting better service from the outside specialist.
Outsourcing has become a multibillion dollar industry in the United States, employing hundreds of thousands of people. A 1994 survey by Pitney Bowes Management Services found that 77 percent of 100 Fortune 500 companies outsourced some aspect of their business support services.
The strategy is so popular that the Defense Department is looking at outsourcing as a way to save cash so it can buy new weapons. This was recently punctuated in a Pentagon report called ``Improving the Combat Edge Through Outsourcing.''
Despite its popularity, outsourcing has a dark side. Some people lose their jobs as they are replaced by workers who typically earn less and have fewer, if any, benefits. Federal employees are paid more and have better benefits than the average private-sector worker.
``It's going to kill us,'' said Richard Higgins, president of the American Federation of Government Employees' Local 22, which represents about 5,000 civil servants working in local military installations. ``We're going to fight it.''
Hampton Roads has more than 55,000 federal civil service workers, the vast majority of whom work for the Defense Department.
The Defense Department already outsources some services, which it says saves about $1.5 billion a year. But it needs congressional approval to push ahead with a more aggressive outsourcing campaign.
The Defense Department ``must continue to reduce its infrastructure and support costs to increase funding for modernization in the coming years. . . . ,'' according to its outsourcing report, published in March. ``Experience in the (Defense Department) and private sector consistently and unambiguously demonstrates how the competitive forces of outsourcing can generate cost savings and improve performance.''
The Defense Department employs nearly 850,000 civilians, including more than 325,000 civilians who perform support services such as operating commissaries and hospitals, handling payroll, repairing ships and maintaining installations that could be provided by outside service firms.
Its goal is to shrink its civilian employment to about 728,000 by 2001, almost 35 percent below 1987 levels, according to the General Accounting Office.
Outsourcing of support activities will provide some of that decrease.
Aside from possibly privatizing more depot maintenance, such as the work the Navy does at the Norfolk Naval Shipyard, the report identifies numerous areas where the military could save money by outsourcing. They include material management; base commercial activities; finance and accounting; education and training; and data centers.
``One of the advantages of outsourcing is it's less expensive,'' said William Leavitt, assistant professor in Old Dominion University's Department of Economics, Public Administration and Urban Affairs. ``But it's less expensive because the wages are less.''
The Pentagon already does some outsourcing. It estimates that about 25 percent of base commercial activities such as food services, local transportation and facility and vehicle maintenance are already outsourced.
``The federal government would be at least twice as large were it not for outsourcing,'' Leavitt said.
Numerous companies in Hampton Roads have sprung up to provide such services to the military in the region and elsewhere.
Hampton Roads' 55,000 civil servants earn an average salary of more than $36,000 a year, according to John Whaley, economist for the Hampton Roads Planning District Commission.
``They would have excellent benefits, too, substantially above average for the region,'' Whaley said.
And if the military replaces more of what it does in-house with outside labor, some of them could lose their jobs.
``You will lose some jobs, there's no question about it,'' said Dan Goure, deputy director of political-military studies at the Center for Strategic and International Studies. ``But at least there will be some jobs. They will just be lower-paying jobs.''
The federal budget is forcing the matter, Goure said. The Pentagon must make a choice between cutting personnel costs or its procurement and research and development costs, he said.
``Outsourcing is more cost effective,'' he said. ``That's a right all American citizen's have: to have their tax dollars spent more efficiently.''
There's a lot of ambivalence about government privatization and outsourcing.
"Is the government there just to provide services or should it provide opportunity and help maintain community standards of living?" Leavitt said.
Outsourcing can mean fewer jobs for civil servants and reduced opportunity in communities like Hampton Roads with numerous civil servants.
``From the point of view of society, the workers, their spouses and children, living in a certain place, (outsourcing) means disaster, permanent instability to say the least,'' said Edward Luttwak, a fellow at the same Washington think tank as Goure, but with a different perspective.
``If you accept efficiency as your one and only criteria, of course you should outsource. The government should even more so because it will provide services even cheaper,'' Luttwak said. ``That would be perfectly true if we operated our society to serve our economy, but it wouldn't be if we operated our economy to sustain our society.''
The Pentagon doesn't have the luxury to make a mission of sustaining good jobs. Its budget is shrinking and it needs to be sure it can perform its primary mission of defending the nation.
``Unless you start making these changes now, given the fact we are running what I call a defense deficit, we're not going to have any choice but to make these changes later, all at once,'' Goure said. ``Then the impact will be even more devastating.''
The effects of outsourcing can be mitigated if done in an orderly, planned fashion, Goure said. ``In other words, don't just drop the depots off the end of the pier today,'' he said. ``Do it more slowly.''
That's exactly what the Pentagon isn't doing, according to a recent study by the General Accounting Office, a federal watchdog agency. And it's hurting the military's readiness.
In the report ``Civilian Downsizing,'' the GAO calls on the Defense Department to develop a comprehensive, long-term strategy for reductions in its civilian work force.
Without such a plan, military officials fear morale of its civilian work force could be affected by limited career opportunities, job insecurity and the need to work longer hours.
Meanwhile the unions representing federal workers plan to attack the very premise of outsourcing.
``It looks like it's a money-saving tool,'' Higgins said, ``but it's been proven that contracting out, or outsourcing as it's called now, winds up costing the government more for services that aren't always as good.''
KEYWORDS: PRIVITIZATION by CNB