Get county out of horse-and-buggy era of local preferences
Written by Michael Lewis on September 13, 2016
Miami-Dade commissioners this week are moving to better administer bad policy. They want to tighten the definition of local companies so that they can funnel more county contracts to local firms under the erroneous theory that this will aid the county’s economy.
Like our main presidential candidates, our commissioners may be well-intentioned but they’re terribly mistaken about the ultimate impact of erecting economic barriers to outside vendors and contractors – be they from China or Jacksonville.
The ultimate result of artificial business barriers is to raise the cost to the buyers – in this case, county government, which means the taxpayers.
Miami-Dade already has the costly barriers, which specify that in bids for county contracts or purchases firms that operate locally get 10% leeway and those that also have their headquarters here get 15% leeway – meaning that if they bid respectively up to 10% or 15% higher than an out-of-towner they get to lower their bid to nose out competitors.
That sounds like they simply get the chance to beat everyone else but not at a higher price. Sounds like it, but not so.
That’s because bidders for county work are savvy. They know the rules. Bids cost a lot to submit, and out-of-town firms know that locals get to edge them out and realize that they aren’t going to win, so why bid in the first place?
Local bidders know that efficient and low-cost firms from elsewhere won’t be bidding, so the locals can jack up their bids and still be competitive, since other locals who will bid also know this. Thus, all bids come in artificially high. Even if outsiders do bid, locals get to cut prices, and 15% is a big margin in any bidding.
Game theory experts who analyze government bidding know that when you give local bidders a tremendous advantage and they know it, they as a group will bid higher than if they had competitors from elsewhere on a level playing field.
So is the funneling of contracts to local higher bidders really economic development or is it a way to send contracts to those who are far more likely than out-of-towners to contribute to county political campaigns – contributions that came straight from taxpayers’ pockets in the form of artificially high contract earnings?
Don’t get me wrong: lots of well-meaning officials nationally have instituted local preferences with the mistaken notion that they are building up an economy rather than just paying more for contracts than they should.
Yet a national study a few years ago found that a 5% local preference raised taxpayer costs 3.8%. How much more do 10% and 15% margins cost? That’s why government purchasing professionals across the nation oppose local preferences – their goals are to save government money, not raise costs.
Business observers feel that Miami-Dade County pays far more for almost everything than a private buyer would. That’s not necessarily graft, or red tape costs, or inefficiency. Some of it is due to policies that tilt a playing field for providers.
Remember, every tilt costs money. The less the competition, the higher the cost. What some see as social engineering to steer money to one preferred group or another for whatever compassionate reason others see as unnecessary overspending by government. Both are probably right.
Protectionism – be it national tariffs or local preferences – always is an economic loser. Studies show that it doesn’t even build businesses at home – those with artificial help on contracts have higher operating costs and thus are less efficient in selling to private enterprise as well as to government.
A county move to fine-tune the definition of a local business is like trying to legislate how a horse and buggy must operate on our expressways. The county can clean up the rules of the road, but it would be far better off getting out of the horse-and-buggy era of local preferences.