Washington's legion of government contractors are salivating over the Bush administration's plan to allow them to compete with 450,000 civil servants to perform a quarter of the government's civilian work. The industry's Professional Services Council boasts how the private sector will be able to do much of this work better and cheaper; its president, Stan Soloway, promises a boon to the local economy.

Bobby Harnage sees it differently. The president of the American Federation of Government Employees warns that many loyal, hardworking civil servants will be out on the street if Bush turns government over to "well-connected profiteers." The union says the only reason the private firms win these contracts is that they low-ball bids and pay their workers less than a living wage.

There is a germ of truth in what each side claims, but only that.

Despite what the unions say, competition works. Studies show that when government employees must compete for work with outsiders, quality improves while costs decline 25 percent or more. That's just as true when the government workers win, which happens about half the time.

It's also true that the government's pay scales are out of whack, overpaying lower-skilled workers while underpaying those with higher skills. That's why the private sector tends to win work done by maintenance workers and security guards, and why the government can't hold on to computer programmers.

You can hardly blame government employees for being a bit skeptical of the motives behind the outsourcing push. Mitch Daniels, director of the Office of Management and Budget, never misses a chance to ask audiences why the government should perform any function listed by private companies in the yellow pages. The president himself loves to talk about cutting taxes and shrinking the role of government.

At the same time, you can't fault government managers for their enthusiasm for outsourcing in the face of knee-jerk union opposition to any change in civil service rules that protect incompetence, reward mediocrity and drive the best employees away.

How bad is it? So bad that retired Lockheed chief Norm Augustine tells me that not one student in his technology management classes at Princeton expressed willingness to work in government. So bad that even government employees report that 25 percent of their colleagues accomplish little or nothing. So bad that NASA had to outsource the management of the shuttle program because it couldn't do it efficiently and effectively in-house.

And there's the rub: Outsourcing has been the workaround that allows presidents to avoid tackling the real problems, which are uncompetitive wage scales and outdated civil service rules that make it impossible for government managers to manage. Unless these are fixed, it's inevitable that talent will continue to flee and even more work will have to be farmed out to the private sector. That's not my conclusion -- it's straight out of the recent report by the bipartisan National Commission on the Public Service, led by former Fed chairman Paul Volcker.

This is no small matter for the Washington economy. Despite the tech bravado, the goose that lays the golden egg around here has always been the federal government. Our economy is robust because smart, ambitious people have flocked here to work in government -- and wound up staying in some capacity, including starting their own firms. They dream of working for the CIA or Head Start, not DynCorp or SAIC. And the moment public service stops being that kind of draw and government becomes a hollowed-out shell of political appointees, deadwood and contracting officers, that's when the Washington economy is in trouble.

My predecessors in this space, the late Hobart Rowen and the retired Rudolph Pyatt Jr., had a keen understanding of this interplay among government, business and the economy. Starting today, and each Wednesday and Friday, my challenge will be to live up to their standards for authoritative reporting, no-nonsense analysis and original thinking -- and have a bit of fun besides. I hope you'll stick around.

Steven Pearlstein's e-mail address is pearlsteins@washpost.com. He will host an online discussion today at 11 a.m. at www.washingtonpost.com.