Adventures In Privatization

For a considerable period of time in the late 1900s, privatization of government functions was all the rage. (Not that it was true privatization; as I’ve noted before, actual privatization  requires that government completely withdraw from whatever activity was involved, leaving its provision entirely to the private sector.)

What public entities call privatization is almost always contracting-out or outsourcing–providing a service through a third-party surrogate rather than through government employees.

Enthusiasm for the practice has abated considerably, as research has steadily deflated the claims made by proponents. Contracting out doesn’t usually save money, for one thing, and the ability of government to monitor those with whom it contracts has proved to be less than ideal, to put it mildly.

Also, in far too many situations, contracting has become the new patronage.

There are certainly public functions that lend themselves to outsourcing, but thanks to the American penchant to go “all in” on the latest management fad, contracting has often proved disastrous. From poor outcomes, to cost overruns, to outright corruption, analyses have been increasingly negative.  A recent research project adds one: government outsourcing decreases employee diversity.

A new study by researchers at the University of Georgia revealed that when governments contract work out to private companies, fewer  African-American, Hispanic, and female employees are hired.

Over the past twenty years, private contracting has become a popular way to improve efficiency in the public sector.

“Increasingly, services that were once performed by public employees, are provided under contract by private firms,” explained study author J. Edward Kellough, a UGA professor of public administration and policy in the School of International and Public Affairs. “The question,” he added, “is whether this growth in contracting has been detrimental to minority and female employment.”

That’s not nearly the worst of it.

The Trump Administration has been contracting with private prison companies to house refugees at our southern border. Private prisons are arguably the most striking misuse of government outsourcing, and their operation of border facilities has raised understandable outrage.

I’ll let Paul Krugman take it from here.

Is it cruelty, or is it corruption? That’s a question that comes up whenever we learn about some new, extraordinary abuse by the Trump administration — something that seems to happen just about every week. And the answer, usually, is “both.”

What about the detention centers at the border?

And the same goes for the atrocities the U.S. is committing against migrants from Central America. Oh, and save the fake outrage. Yes, they are atrocities, and yes, the detention centers meet the historical definition of concentration camps.

One reason for these atrocities is that the Trump administration sees cruelty both as a policy tool and as a political strategy: Vicious treatment of refugees might deter future asylum-seekers, and in any case it helps rev up the racist base. But there’s also money to be made, because a majority of detained migrants are being held in camps run by corporations with close ties to the Republican Party.

Krugman then sums up the whole sorry experiment with “privatization.”

Privatization of public services — having them delivered by contractors rather than government employees — took off during the 1980s. It has often been justified using the rhetoric of free markets, the supposed superiority of private enterprise to government bureaucracy.

This was always, however, a case of bait-and-switch. Free markets, in which private businesses compete for customers, can accomplish great things, and are indeed the best way to organize most of the economy. But the case for free markets isn’t a case for private business where there is no market: There’s no reason to presume that private firms will do a better job when there isn’t any competition, because the government itself is the sole customer. In fact, studies of privatization often find that it ends up costing more than having government employees do the work.

Nor is that an accident. Between campaign contributions and the revolving door, plus more outright bribery than we’d like to think, private contractors can engineer overpayment on a scale beyond the wildest dreams of public-sector unions.

Krugman makes an even more important point about accountability.

As he says, if you outsource garbage collection, it’s pretty easy to determine whether the garbage has been collected (although I’d note it’s not so easy to tell where it’s been dumped…). But if you hire a private company to do something the public can’t see–like prisons or migrant camps– it’s easy to hide poor performance and generous overpayments to political cronies.

And running a prison, which is literally walled off from public view, is almost a perfect example of the kind of government function that should not be privatized. After all, if a private prison operator bulks up its bottom line by underpaying personnel and failing to train them adequately, if it stints on food and medical care, who in the outside world will notice?

And of course, the administration and its cronies profit from these facilities. It’s hard to disagree with Krugman’s final observation:

Every betrayal of American principles also seems, somehow, to produce financial benefits for Trump and his friends.


  1. Thank you for yet another great example of why these people MUST be defeated in 2020. and 2022. and 2024…..

  2. patmcc,

    “these people” are RACIAL FASCISTS , they aren’t going to let you win, especially by any election process. They aren’t fools, we are the fools.

  3. For years, Presidents and pundits alike have demeaned government workers. It’s time we sat up and noticed that government workers are at least as good as, and in many cases much better than similarly positioned private employees. When we do that, it will be easier to shut down the contracts.

  4. “Privatization” is just another word for PROFITEERING or exploiting others for greed. Mass incarceration and currently, mass detainment of asylum seekers is plainly outrageous theft of our tax dollars where practically none of our tax dollars are going to the care and well-being of the people in the system. Rather, the bulk of the money drops into the pockets of the so-called contractors.

    The farce of Pence and other republicans going to detention centers to show the clean and well-fed detainees and the “beautiful” conditions has now blown up in their smug faces.

    Iʻm with Patmcc – we must win both chambers and potus in 2020 and beyond, ad infinitum.

  5. “What public entities call privatization is almost always contracting-out or outsourcing–providing a service through a third-party surrogate rather than through government employees.”

    Here in Indiana we received notification November 8, 2017, from Indiana Public Retirement System (INPRS); “Effective January 1, 2018, the Indiana Public Retirement System has contracted with State Street Retiree Systems to pay retirement benefits for the Indiana Public Retirement Fund. This means payment of your monthly pension benefit will now be handled by State Street.”

    When I contacted Democratic Representative Dan Forestal via E-mail, he knew nothing about this but had his Chief Legislative Officer contact me with information. She informed me this is not “privatization”; they simply switched from the private company who had been handling disbursement of our retirement funds for three years. We had not been notified of that change; State Street Retiree Services required an entirely new registration of our retirement records to continue receiving our monthly checks. My research found that State Street Corporation is an American financial service and bank holding company and the 2nd oldest U.S. bank on the list of “too big to fail” corporations. I consider this privatization of my retirement funds due to re-registration of my retirement. As an aside; we have not received a COLA since January 2009; INPRS fights the Indiana Legislature annually seeking a COLA increase and to maintain what they call our “13th check” each fall. How safe is our retirement money after years of paying into the fund?

    Regarding local garbage collection; privatization or outsourcing, the City began contracting with Republic to perform this service in some areas, paid or with our property taxes. A few years ago the City provided 92 gallon “trash bins” to be emptied by automatic lift-and-dump trucks; Republic proves 46 gallon “trash bins” for residents, if they need a 2nd bin it will cost them $68. Most families need more than one but can’t or won’t pay that amount so they sit out filled older trash cans which must be manually lifted and dumped. The same situation is in areas with the City 92 gallon bins. Whoever provides garbage collection is required to perform this service, paid for by our property taxes…what has been accomplished by this change and who is making the profits? What is the Republic contract costing the city? Call it what you like; it is all part of FOLLOW THE MONEY. Republicans has found a way to include our garbage in their profiteering.

    “And of course, the administration and its cronies profit from these facilities. It’s hard to disagree with Krugman’s final observation:

    Every betrayal of American principles also seems, somehow, to produce financial benefits for Trump and his friends.”

  6. Krugman’s comments have a ring of something I’ve heard of. . . . oh, I think I’ve got it, wasn’t it something that took place in Europe waaay back in the more primitive 20th century in a nation state that suffered through a Thirty Years War back in the 17th century when it was merely a bunch of principalities?

  7. A study by POGO several years ago looked at 35 federal job classifications. It found that in 33 of them, the cost to the government of privatizing was more than if the jobs had been done by government employees. In some cases the cost was about a factor of two. The reason is simple. Employees of many private companies are paid less than civil service scales, and have no pensions. In addition, executives of the company usually are paid more than those in charge of government jobs. And the government has no control over the expertise of those working for the private companies.

  8. Last evening I attended the gathering outside the ICE center here in Indy. There were maybe two hundred people there. Good people, polite, nice speeches against a backdrop of noise from the highway. Then I left and drove back home through downtown Indianapolis where thousands of young, mostly white, people partied like there was never going to be another drop of craft beer brewed. Meanwhile, Pence was at a concentration camp in Texas to make it appear that he cared. He later reported that it was what he expected, and keeping it political as opposed to humanitarian, he said that it was time for Congress to act.
    It was all so similar to what I have studied about Germany in the 1930s. Berlin party goers living it up as their country turned into a fascist nightmare, trapped in a prison of their own making having given up their freedoms in order to gain order and prosperity. While they reveled at the beer gardens their neighbors were being rounded up and shipped off to they did not care where.
    2020 may not come in time.

  9. Neoliberalism at its finest. We haven’t learned much in 30 years. “Government cannot function as well as the private sector.”

    Private prisons are very profitable for CEOs and shareholders vs prisons run by the government.

    Which ones are “better?”

    Instead of asking Paul Krugman, we should probably ask inmates who’ve been in both a government-run prison and a privately-run prison.

    The detention camps have been visited by congressional members and the contracts with private operators should be immediately terminated. The whole idea that “these people aren’t ours” is deplorable. Where did this mindset evolve??

    We are embarrassing ourselves on the world’s stage.

  10. Theresa,

    “2020 may not come in time.”

    From “Inevitable Surprises: Thinking ahead in Time of Turbulence” by Peter Schwartz (Gotham Books, New York, 2003) pp. 8-9:

    “When an inevitable surprise confronts us, there are two different types of natural reactions. Both of them can lead to poor decision making.

    The first is DENIAL—the refusal to believe that the inevitabilities exist. This was one of the key reasons, of course, why the U.S. Government was unprepared for the attacks on September 11, 2001. Enough peoples in positions of authority simply refused to believe the need was great and urgent enough to justify rethinking the structure of our national security system. When in denial about an inevitability, people tend to blithely act as if it didn’t exist, and as if there were no need to break from routine and prepare for it. The losses that result can be immense.”

  11. Krugman gives vent to what is already well known, that privatization of government services by politicians via contract is a means of avoiding pensions, unionization etc. of government employees while providing “campaign contributions” (aka bribes) to such politicians’ coffers. It is theft in plain sight and became popular, predictably, during the Reagan regime.

    The private prison industry has gone beyond merely running prisons and paying off politicians; they are now actively lobbying state legislatures for heavier penalties. Those dirty jaywalkers should do 20 years – yessiree! Business is business, you know. So now we have private contractors using tax money to make and influence policy? Who voted for them? How far does this go? (On the other hand, an argument could be made that contractors for profit would do a better job at governing than the sorry spectacle we have governing us in the State of Indiana, among other such states who are flirting with the Brownback Solution.)

    What to do? First, you win the election. Then you appoint an independent commission to study what should and should not be privatized based on costs and other efficiencies in the production of goods and services subject to privatization, outlawing lobbying and payment of “campaign contributions” by such contractors or their proxies to politicians of any political stripe. What next? I leave that up to bright and thoughtful legislative staff and fearless reformers.

  12. Health care insurance and pharmaceuticals are good examples of what “private” corporations can do to the social fabric. Private health care insurance works with a 25% – 60% overhead up front. Medicare/Medicaid operates at 7% or less overhead. Guess who pays for the difference.

    Pharmaceuticals probably cannot be absorbed by the government even though the government funds so much research at universities and colleges that aid in drug development. HOWEVER, when these for-profit (and only for profit) entities charge $300 per vial of insulin while our northern neighbors pay $30 for the same vial from the same manufacturer, one is forced to realize who is actually making the stockholders richer.

    No surprise about the racial, ethnic and gender biases among corporations. All you have to do is look at their organization charts. White males still dominate and that’s what they want working for them.

  13. Gerald: “What to do? First, you win the election.”


  14. how much are those private companies making per head,at the border,i read $400 a day,per head. totally unexpected surge of needed housing due,trumps cutting off the check in and send em on to their destination…they had,a check in and would be housing issue. the ones immediatly identified as issues,held. simple. instead its just trumps show of force,again,at the fortunate. consentration camps.,you bet,before hitlers final solution. people were rounded up and used as slave labor. mainly the less desirable,in his mind.(like trumps) (er,cant be,hasn’t a brain) when mcconnel sits on his hands and doesnt investigate this travisty,he to, is implicated in this unlawful detention. when and if,they ever see civialian life again,i hope the likes of pelosi are gone,and we see a change,where the law convicts such egregious behavior,and people are tried and convicted of such. no more free rides like wall streets elite, if they can cage the people, we the people should be able to cage the politicians who are above the law…best wishes.

  15. Re: Gerald Stinson;

    It’s really hard to believe the Democrats would create such a commission if/when elected. This is the same party that fought to regain a majority only to approve Trump’s 4.5 billion without an agreement to defer ICE raids.

    Cynical? No,the verifiable evidence has proven the spinelessness of Democrats as a real concern–except when it comes to Wall St. interests.

  16. Gerald Bostock @ 11:42, I agree with your sentiments. We have in Indiana a Privatization Scheme with our School System. At least from what I have read these Charter – Voucher Schools appear to be virtually untouchable in terms of oversight. The Religious Schools have a free reign to indoctrinate their pupils with all sorts of religious bigotry and supernatural mythology and at the same time are subsidized by the tax payers.

    Where is the push back to these schemes to privatize education???

  17. ML:”Where is the push back to these schemes to privatize education???”

    There is none. It must be the fault of RUSSIANS!


    Where are the Democrats in California wrt Balance Billing? Crickets. But Republicans….and RUSSIANS!


    Has anyone told Pelosi about the high home run total this season? If she finds out, I expect all kinds of baseball players to be raked over the coals.


    Gotta stop Trumpism. Trumpism caused a coup in Honduras. Trump lied to us and got us into a war in Afghanistan and Iraq. Trump bailed the bankers and his racism demanded the foreclosures of homes disproportionately from minority folks. Trump implemented a penalty for those not willing to pay the Insurance-Industry-Complex their share of forced compliance to Romney/Heritage FoundationCare.

    Can you believe Trump made the bankruptcy laws much stiffer for individuals loaded with student loan debt?

    And,Trump made Bush’s tax cuts for the wealthiest permanent. Trumpism sucks. It’s a good thing the DNC will choose to run with a younger progressive individual with a great track record! Ya know,Joe Biden.

  18. Gerald Bostock,

    Sanders has changed the political discourse. Language is a part of it, his fervor in delivering the message is readily apparent. He has a command of political history. His track record is through the years been consistent. Sanders has not gone Left, he has always been there.

    The DNC Corporate Empire has recognized the Twin Threats of Elizabeth Warren and Bernie Sanders and brought out of semi-retirement Corporate Joe Biden. K. Harris came out punching. Pop, Pop, Corporate Joe took one punch after another, he had this confused look on his face and went into shell. Corporate Joe’s counter punching attempt simply left him open for more Pop, Pop.

    So, now I wonder if K. Harris after being admonished by the Corporate Media for making Joe Biden looking helpless, will back off. You have to wonder if K. Harris can make Corporate Joe look foolish, what would President Agent Orange do to him.

  19. Hell,I think Pelosi considers Ilhan Omar,AOC and Rashida Tlaib as a bigger threat to the country than Donald Trump.

    Democrats have not learned a thing. I agree with Matt Stoller,Democrats don’t want to govern. Pelosi wants to continue generating cash for the Party of Davos. Any reasonable working person would be correct in abandoning the party. Because,the Democratic Party abandoned them decades ago.

    DNC: We Need Young People With Ideas To Join Our Tent/Party……..Only to shit on them.

    Public: “We need a real healthcare program.”

    DNC and it’s lackey:” STFU!!”

  20. Gerald Bostock; Ilhan Omar, AOC and Rashida Ltaib have segregated themselves racially to fight racism, they were elected as members of the House of Representatives, not to divide the Democratic party from within.

  21. I recently attended a presentation regarding hemp production at a Purdue experimental farm. Next to me was a representative of one of our right wing House reps. I made the comment that the Indiana legislature’s urging farmers to grow hemp experimentally without any financial assistance was another example of our unfunded mandates. He automatically said that it should be done by “the industry”. This is pure, unthinking automatic ideology, not considering what can and should be done by the government and what activities can be done privately.

  22. Gerald Bostock, I agree Pelosi has basically told The Squad to sit down and shut-up.

  23. America’s two-party political system has no answers to the attempted FASCIST takeover by the traitor, Donald Trump. WAKE-UP! before it’s too late.

  24. Privatization is sometimes, but few, warranted. The basic fact is: It is a myth that the private sector can do anything productively, at less cost, or more efficiently than government. The transition of healthcare and health insurance from non- profit to corporate exploitation of a basic human need has made our system ineffective, robotonic ande exploitively expensive.

  25. JoAnn Green:” they were elected as members of the House of Representatives, not to divide the Democratic party from within.”

    Bullsh*t. Your reply is a total Party-Bot meme. The squad represent a large portion of people that are tired of a party that tut tuts about the right things but/and never does jack shit about them. Meanwhile,Pelosi is an oligarch and multimillionaire and is not a traitor to her class. A class she shares with none other than Donald Trump. Keep in mind Pelosi and Mitch “Evil” McConnell share the very same view(s) wrt Medicare For All. Think about that!

  26. Please explain how Medicare for all can be accomplished 46 years after Nixon repealed the law preventing health care from being for-profit business? Health care is now comprised of billion dollar corporations paying its CEOs millions annually in salaries while providing little, if any health care, depending on annual deductibles. Other nations who provide such health care have a tax structure which supports the system as well as other benefits; too late for this country to remove the 1% from their corporate control of our lives.

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