According to the Washington Post, Elon Musk and the Trump Administration are hauling out an “oldie but goodie” and promising that once they’ve hollowed out the federal government’s capacity to govern, they’ll turn any functions they deem necessary over to the private sector. They’ll privatize for “efficiency.” What could possibly go wrong?
Let me count the ways.
I spent a fair amount of my academic career researching what folks on the Right misleadingly call “privatization.” The first thing you need to know is that calling what Trump and Musk want to do “privatizing” is a misnomer. When Margaret Thatcher sold off government-owned industries to the private sector–where they made or lost money, paid taxes, and were left to sink or swim–that was privatization. In the U.S., the term is used to mean contracts between a government agency and a business or nonprofit organization to provide a government benefit or service. Government continues to pay for that service or benefit with tax dollars, and government remains responsible for its proper delivery.
Sometimes, contracting out makes sense. Sometimes it doesn’t. (It also shouldn’t be confused with procurement— government’s purchase of goods and services from the private market.)
Contracts with units of government are qualitatively different from contracts between private actors, and those differences make it far more likely that the “privatization” contracts ultimately negotiated will be unfavorable to taxpayers. Contracting out first became a fad at the state and local level some twenty-plus years ago, and the results weren’t pretty.
As I wrote back in 2013, mayors and governors who are considering privatization are operating under a different set of incentives than the corporate CEO who is charged with long-term profitability of his business. Long term to a politician means “until the next election.” Typically, the elected official is looking for immediate cash to relieve fiscal stress (and improve his immediate political prospects) and is much less concerned with the extended consequences of the transaction.
Furthermore–although it really pains me as a former Corporation Counsel to admit this–the lawyers who reviewed these deals for local governments tended to be far less sophisticated than lawyers acting on behalf of the contractors. That’s not because they aren’t good lawyers–most are. But the skills required to advise a municipality or state agency aren’t generally the same skills as those needed by practitioners of business transaction law.
In addition to the existence of unequal bargaining capacities, there is also—unfortunately—the very high potential for “crony capitalism,” the temptation to reward a campaign donor or political patron with a lucrative contract at taxpayer expense. Back in the bad old days, patronage meant that you volunteered for the party and if your party won, you–or maybe your brother-in-law–got a job with the city or state. With “privatization,” patronage meant that you made a meaningful contribution to the party and if it won, you got a cushy contract.
Ideally, the media would act as a watchdog in these negotiations, alerting the public when a proposed contract is lopsided or otherwise unfavorable. But media has never been very good at providing this sort of scrutiny, because news organizations rarely employ business reporters able to analyze complex transactions. (In today’s media environment, of course, we’re lucky if we even know a deal is in the works.)
In that 2013 post, I warned that we shouldn’t be surprised when these transactions turn out to be unfavorable to the taxpayer–and in the years that followed, a great many of them proved to be very unfavorable indeed. (For one thing, it turned out that too many government agencies lacked the capacity to effectively monitor contractors.)
Worse, from an accountability standpoint, when services are delivered by an intermediary, citizens often fail to realize that those services are really being provided by government. That failure has constitutional as well as political implications. Only government can violate an individual’s civil liberties–that’s what lawyers call “state action”–so it’s important that we be able to distinguish actions taken by private actors from those that can be attributed to government. Privatization has significantly muddied that distinction.
Also, when contracting is extensive, it masks the true size of government. Today, there are approximately 3.7 million contract employees in addition to 2.1 million civil servants. Only the latter are being targeted by Musk.
Will the public fall for this replay of an expensive and discredited “reform”? Hopefully, our earlier, extensive negative experience with privatization will prevent folks from falling for this again, but as we know, simple prescriptions sell.
The plutocrats are undoubtedly salivating….
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