Friday, June 28, 2013

Government vs. private sector debate: The Snowden Affair

Here is a thought for the weekend: Most people in business and particularly on Wall Street accept the principle that private enterprise does things better than government. A recent commentary about the Snowden Affair brings calls into question that assumption:

The story of Edward Snowden and how he got to be in a position where he could leak details of the National Security Administration’s (NSA) surveillance program is revealing a great deal about the privatization of our national security system. Much of what we are seeing is not pretty.
The critical question is, "How did so many private contractors wind up in the national security apparatus?"

However, apart from the extensive system of surveillance at the NSA, Snowden has also called attention to the extent to which national security operations have been privatized. Of course, Snowden did not work directly for the government; he worked for Booz Allen Hamilton, a private contractor. Booz Allen is a $6 billion a year business. It gets the vast majority of its revenue from government contracts like the one that paid Snowden’s salary.

While the specifics of Snowden’s work are not clear, we know that he was being paid more than $120,000 a year. That’s pretty good pay for someone who just turned 30 and never graduated high school. Needless to say, Booz Allen was billing the taxpayers even more for Snowden’s work since they are in business to make a profit. Snowden may have had extraordinary skills that would justify this sort of pay, but there is no way for the public to know.

It turns out that even the background check that provided the basis for Snowden’s security clearance was done by a private contractor. USIS, a company based in northern Virginia, did the background check on Snowden and many other people with security clearance.
Private contractors = Mercenaries
This reminds me of the commentary of Niccolò Machiavelli, who wrote The Prince. Contrary to popular belief, Machiavelli was not a prince, but an advisor in Florence during a tumultous period in Italy where the country was fragmented into small principalities and city-states and the region was in a constant state of conflict. Machiavelli fell out of favor and wrote The Prince as a way to try and regain favor but was ultimately unsuccessful. The Prince was known as being unusually frank about the practice of politics, which was contrary to Church doctrine of the time:
The descriptions within The Prince have the general theme of accepting that the aims of princes—such as glory and survival—can justify the use of immoral means to achieve those ends.
Machiavelli's work is applicable to modern times because the government's use of private contractors is effectively contracting out national security to a mercenary force. Here is what Machiavelli said about mercenaries [emphasis added]:

I say, therefore, that the arms with which a prince defends his state are either his own, or they are mercenaries, auxiliaries, or mixed. Mercenaries and auxiliaries are useless and dangerous; and if one holds his state based on these arms, he will stand neither firm nor safe; for they are disunited, ambitious and without discipline, unfaithful, valiant before friends, cowardly before enemies; they have neither the fear of God nor fidelity to men, and destruction is deferred only so long as the attack is; for in peace one is robbed by them, and in war by the enemy. The fact is, they have no other attraction or reason for keeping the field than a trifle of stipend, which is not sufficient to make them willing to die for you. They are ready enough to be your soldiers whilst you do not make war, but if war comes they take themselves off or run from the foe; which I should have little trouble to prove, for the ruin of Italy has been caused by nothing else than by resting all her hopes for many years on mercenaries, and although they formerly made some display and appeared valiant amongst themselves, yet when the foreigners came they showed what they were. Thus it was that Charles, King of France, was allowed to seize Italy with chalk in hand; 1 and he who told us that our sins were the cause of it told the truth, but they were not the sins he imagined, but those which I have related. And as they were the sins of princes, it is the princes who have also suffered the penalty.

I wish to demonstrate further the infelicity of these arms. The mercenary captains are either capable men or they are not; if they are, you cannot trust them, because they always aspire to their own greatness, either by oppressing you, who are their master, or others contrary to your intentions; but if the captain is not skilful, you are ruined in the usual way.

And if it be urged that whoever is armed will act in the same way, whether mercenary or not, I reply that when arms have to be resorted to, either by a prince or a republic, then the prince ought to go in person and perform the duty of captain; the republic has to send its citizens, and when one is sent who does not turn out satisfactorily, it ought to recall him, and when one is worthy, to hold him by the laws so that he does not leave the command. And experience has shown princes and republics, single-handed, making the greatest progress, and mercenaries doing nothing except damage; and it is more difficult to bring a republic, armed with its own arms, under the sway of one of its citizens than it is to bring one armed with foreign arms. Rome and Sparta stood for many ages armed and free. The Switzers are completely armed and quite free.
He concluded with:

I conclude, therefore, that no principality is secure without having its own forces; on the contrary, it is entirely dependent on good fortune, not having the valour which in adversity would defend it. And it has always been the opinion and judgment of wise men that nothing can be so uncertain or unstable as fame or power not founded on its own strength. And one's own forces are those which are composed either of subjects, citizens, or dependants; all others are mercenaries or auxiliaries. And the way to take ready one's own forces will be easily found if the rules suggested by me shall be reflected upon, and if one will consider how Philip, the father of Alexander the Great, and many republics and princes have armed and organized themselves, to which rules I entirely commit myself.
In other words, the citizens of a democracy have obligations. Unless they are willing to bear the costs, they will bear the consequences of the use of a mercenary force, as Machiavelli predicted about 500 years ago. We have to bear in mind that, for certain functions, government does some things better than the private sector.

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.


Anonymous said...

Good post like always, but you can make the argument that a contract takes both parties to agree, so a government which decided to do business with these private entities need to share a lot of the blame, much like Detroit, which made tons of ludicrous deals with Wall St banks. Their goal should have been to make a good deal on behalf of citizens, which it has failed.

This goes back to the crux of government versus private sector debate has always been about accountability. The reason why most view governments with suspicion is that many times, there is no link between competence and rewards.

You can also make the case that being mercenary is a net-net good thing, that the search for profits steer the economy toward being productive of goods and services that there is a demand for. Meanwhile, the government is still committed to fighting abstract wars on ideology (terror, drugs, poverty, etc) with almost infinitely negative return on investment.

Anonymous said...

Yes the gov't would spy on it's own citizens better than a mercenary force. (if you want the gov't to spy on you) good grief

Knight-trader said...

In the not so distant future mechanized warfare will negate the need for almost all soldiers, mercenaries or not.