Tag Archives: privatization

The Perils Of Privatization

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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The Real Reason For Decimating The Federal Government…

I should have seen it.

The Washington Post recently reported on what should have been obvious to those of us who have studied the Right’s constant efforts to privatize governmental functions: Elon Musk’s mass government cuts will make private companies millions. While Trump and Musk are framing the immense and indiscriminate cuts to federal governance as removal of “waste,” they are really likely to provide what the article calls “a boon to private companies – including Musk’s own businesses – that the government increasingly relies on for many of its key initiatives.”

Much of my academic life was devoted research on contracting-out, a/k/a privatization–the decision to provide government services through private contractors rather than government employees.

My skepticism began with obvious misuse of the term.  Actual privatization would mean selling off government operations and allowing them to sink or swim in the marketplace (a la Margaret Thatcher). Americans, however, use the term to mean something else entirely: government “contracting out” with private companies to supply goods and services being financed with tax dollars.

There are certainly times where contracting makes sense, but government hasn’t been a very good judge of when those are. Contracts with units of government are qualitatively different from contracts between private actors, and those differences make it far more likely that the contracts ultimately negotiated will be unfavorable to the taxpayers who are funding them–and that’s even without the predictable “crony capitalism” that rewards campaign donors and favored billionaire sycophants with lucrative contracts at taxpayer expense.

As Musk has proceeded to lay waste to the federal bureaucracy, many objectors have noted that despite population growth, the federal workforce has been flat for decades. There’s a reason: a few years ago, I came across data showing that the federal government was actually paying the salaries of some 17 million full-time contract workers who weren’t technically government employees.

Criticisms of government operations ignore the reality that programs are often stymied by a lack of skilled in-house personnel. That includes–among other things– the government’s inept handling of refugees and the (mis)management of Medicare and Medicaid ($103.6 billion in improper payments in 2019 alone).

Too few critics recognize that passing a law to do X or Y is only a start; the unit of government charged with administering the law or program needs sufficient resources to do so. Those resources include adequate numbers of well-trained employees and skilled supervision– virtually impossible when contractors are providing the bulk of the services.

Back in 2021, I posted about an example from 2004, when George W. Bush turned the job of collecting the hundreds of billions of dollars that tax scofflaws owed Uncle Sam over to private collectors–parroting the GOP insistence that private business would do a better job than federal workers.  Most of what the private firms brought in was from easy-to-collect cases that began running out after just a few months. When the IRS brought the work back in-house, agents collected some two-thirds more money in that same few months, and it came from the harder cases the private companies had avoided. Relying on private tax collectors actually ended up costing the federal government money.

I should note that Republicans’ subsequent actions suggested that “efficiency” hadn’t really been the goal. They slashed 20 percent of the IRS’s budget and 22 percent of its staff. For people making more than $1 million, the number of tax audits dropped by 72 percent—and the money the IRS collected from audits fell by 40 percent.

The Guardian report noted that private firms are salivating as Musk decimates the federal bureaucracy.

Musk’s plans have already excited Silicon Valley mainstays such as Palantir, whose executives praised Doge on an earnings call last week and talked about how the disruption by the billionaire’s strike squad was good for the company. Palantir already has won hundreds of millions of dollars in US military contracts in recent years for AI-related projects.

Musk himself has extensive contracts worth billions of dollars through companies like SpaceX that are set to expand under the new administration.

There are certainly situations in which contracting out makes sense–but we are already relying on private contractors beyond the point of reason. We have contractors who do more or less the same work as civil servants, sitting in the same offices, for years on end, and typically at far higher cost. We have contractors who oversee contractors, contractors who write policy for government officials, and Trump is firing federal contract managers who are already too few in number and too outgunned in skills to manage it all.

The GOP’s persistent attacks on civil servants costs taxpayers and enriches privateers. The Trump/Musk goal is more of the grift.

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Crony Capitalism–The Big Grift

Not to sound like some sort of weird Pollyanna, but despite the considerable downsides and probable suffering involved, perhaps the Trump administration’s coming destruction of America’s governing institutions is overdue. Maybe we need a thorough-going rethinking of the ways in which America’s current governing structures support and encourage some very destructive approaches–especially to our economic life.

As I have frequently asserted, I am a huge fan of market capitalism–properly understood. By “properly understood,” I mean a system that recognizes two essentials of a working market economy: the maintenance of a true level playing field, which requires rational, reasonable regulation; and proper recognition of the areas of the economy that are not suited to a market approach. Markets are marvelous devices for the production of all manner of goods and services–and absolutely inappropriate and damaging in other areas of our communal lives.

The basic definition of a market transaction is one in which a willing buyer and willing seller, both of whom are in possession of all information relevant to the transaction, enter into a sales agreement. Rather obviously, that definition excludes things like medical care, where the “buyer” is not in possession of the same information as the provider, and is generally in no position to bargain with the provider or to shop around for a better deal.

What about transactions where the “buyer” is government?

Take prisons. In a market economy, should government “purchase” incarceration services from entities competing for those government contracts? Or–as most of us might suspect–does the prospect of a “buyer” with virtually unlimited resources thanks to the taxing power invite would-be contractor/sellers to engage in a range of unethical behaviors–big donations to selected political figures in order to get the contracts, and/or failure to provide the services at an optimum (or even adequate) level in order to generate more profit?

Should prisons be privatized–i.e., considered part of the market economy? Or is the marketization of such essentially governmental services an invitation to corruption?

One recent report looked at the “industry” of immigrant detention. Titled “Revenue Over Refuge,” the report found the following:

  • Hundreds of millions of dollars are flowing from city and federal governments to private equity firms for goods and services used to detain immigrants.
  • 63 percent of federally-designated ICE facilities contract with private equity-owned companies for a range of services.
  • Private equity-owned companies are winning emergency contracts for managing migrant shelters in cities across the country.
  • Companies like Wellpath and G4S have faced investigations and lawsuits and paid out settlements for mistreating immigrants in their care.
  • Private equity firms and other alternative asset managers stand to profit from increased taxpayer-funded immigration detention, although alternatives to detention cost less.

Are we really surprised to find corporate America engaging in these profit-maximizing tactics? More fundamentally, are prisons the sort of consumer item we think of when we consider the merits of healthy market economies?

When I was still teaching, I required the graduate students in my Law and Public Policy classes to produce team projects on a  policy issue that the team would choose. Over the years, several of the teams investigated government contracting with the private prison industry. In every case, the teams’ conclusions were highly negative. Not only did they focus on the poor performance of the contractors–and the high potential for graft–but most teams addressed what I think is the underlying philosophical question: when should government contract out–and when shouldn’t it? When is it appropriate for government to be the “willing buyer” in a market transaction?

America is heading for a very ugly few years, as the MAGA movement tries to install a government that might have been appropriate for an 18th Century society–a government utterly insufficient for America’s contemporary culture and other realities of the 21st Century. The next few years will range from very unpleasant to devastating (those of us with documented citizenship, a measure of financial security and white skin will be spared the worst of it; others won’t be so lucky.) But when the fever subsides, when the current MAGA eruption of racism, misogyny, anti-Semitism and other assorted bigotries has run its course (at least this time), the rest of us must be ready to offer practical systemic and economic reforms.

Production of that reform agenda needs to be a central part of the Resistance.

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“Privatizing” Our Schools

I devoted a fair amount of my academic research to the issue of privatization, and I largely agree with the periodic analyses on the “In the Public Interest” website.

Confounding the issue is the fact that what Americans call “privatizing,” is really something quite different: contracting out.

Margaret Thatcher privatized many of her country’s industries–she sold them off to private-sector operators, who then owned them and paid taxes (and in some cases went bankrupt and out of business). In the U.S., by contrast, we “privatize” by encouraging government agencies to contract with for-profit and non-profit organizations to manage government programs. 

In other words, a program that government is obligated to provide continues to be paid for with tax dollars, and government remains responsible for ensuring that it is operated in a manner that’s consistent with the Constitution, the terms of the contract, and (ideally, at least) the public interest.

My research convinced me of three things: 1) while contracting may be appropriate under some circumstances, it is not the panacea that so many politicians seem to think. Sometimes it makes sense, often it doesn’t.  2) the cost savings that are touted by privatization advocates are largely mythical, the result of omitting what it costs government to manage these contracts–or the even greater costs of failing to manage them. And 3) far from shrinking the size of government, as proponents seem to believe, contracting actually expands both the size and scope of government, while at the same time making that expansion less visible and government less accountable.

Bottom line: contracting out doesn’t usually save money, 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.

I have written pretty extensively about the issues involved, including Indianapolis’ unfortunate flirtation with “privatizing” under former Mayor Stephen Goldsmith. 

Years of research have taken much of the bloom off the privatization rose, but of course, as readers of this blog are well aware, there is one area in which proponents stubbornly continue to insist upon benefits that have proved imaginary, while studiously ignoring numerous and troubling negative consequences. 

That area is public education.

“Florida Man” DeSantis isn’t the only ideologue  pushing a voucher program, but an article in the linked website  revolved around a set of concerns explored by a Florida  newspaper :

With Tallahassee “poised to bleed billions from public classrooms through a sweeping expansion of private school vouchers,” The Sun Sentinel lays out some of the problems this will bring:

If a private school wants to teach children that Jesus rode dinosaurs and call it geography, the state has no say.

If a private school wants to expel an honor-roll child for being gay, that child is out of luck.

If a private school wants to teach students in a building rife with code violations, students will just need to bring buckets on rainy days. Or fire extinguishers.

If a private school wants to hire teachers with a criminal background, or teachers repeatedly fired from previous jobs, or teachers who have no training in teaching, who in the state has the authority to stop them?

If a private school abruptly closes mid-year, who takes care of the students?
The answer? No one.

These are not scenarios limited to Florida. You can find troubling examples of each of them in existing voucher programs in Indiana and elsewhere. 

Most of us understand–and budget numbers confirm– that voucher programs bleed dollars from public schools that need those resources.

I don’t know about Jesus riding a dinosaur, but multiple investigations of private religious schools accepting vouchers have found creationism  substituted for science instruction. Many of those same schools proudly and publicly decline to accept gay students, or even non-gay students who have two mommies or two daddies.

In Ohio a few years ago, David Brennan, a politically well-connected businessman, opened a chain of schools in order to profit from that state’s then-new voucher program; students didn’t learn much, and several of the schools were found to have multiple, dangerous code violations.

In Indiana, we’ve had voucher schools that suddenly closed, leaving parents and students high and dry.

Forgive me for sounding like a broken record, but there was a reason Americans  established public schools. Public schools are intended to teach more than “reading, writing and arithmetic.” They are intended to create informed and engaged citizens–to advance e pluribus unum by pursuing what is termed the civic mission of the schools.

Heedless of the educational failures and lack of accountability, the World’s Worst Legislature is planning to expand Indiana’s already out-of-control school privatization. No wonder Indiana ranks 43d in the percentage of citizens with  bachelor’s degrees–and  worse, lacks legislators having common sense.

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Now They’re Coming For The Library

I have tended to laugh when enraged Rightwing parents demand that schools and/or libraries “ban” book X or Y–in our digital age, access to that material is generally a click away. And that’s in addition to several organizations pushing back with offers to send a free copy to any kid who makes a request.

As a parent, I learned early that if you want to get a child–or especially a teenager–to read something, the most effective thing you can do is tell them they can’t.

But there are some more insidious ways to subvert American libraries, and I recently came across an article highlighting one of them.

The article began by pointing to the great value of America’s public libraries

“There aren’t many truly public places left in America,” Jennifer Howard writes in Humanities Magazine. “Most of our shared spaces require money or a certain social status to access. Malls exist to sell people things. Museums discourage loiterers. Coffee shops expect patrons to purchase a drink or snack if they want to enjoy the premises.

“One place, though, remains open to everybody,” she continues. “The public library requires nothing of its visitors: no purchases, no membership fees, no dress code. You can stay all day, and you don’t have to buy anything. You don’t need money or a library card to access a multitude of on-site resources that includes books, e-books and magazines, job-hunting assistance, computer stations, free Wi-Fi, and much more. And the library will never share or sell your personal data.”

It’s evidently the fact that libraries are “public” that most irritates the Right. The article takes an in-depth look at the private company currently pushing a privatization agenda, adding the current political assault on history, diversity, and racial justice to the purported glories of privatization.

That’s what what happened in Huntsville, Texas, where the city council voted to outsource the Huntsville library’s operations after some residents objected to a book display themed around Pride Month.

Lest you shrug and think “well, of course– it’s just Texas,” think again.

According to the article, a one-time software company called Library Systems & Services (LS&S), backed by  Argosy Capital Group, a private venture firm, has doubled its size and in the past decade has taken over 17 library systems in five states. It runs over 80 branches, and is now the nation’s fifth-largest library system.

So what happens when the private sector takes over a public good–in this case, the public library?

When LS&S takes over, it receives a set fee from a local government. The corporation gets control over the collection, services, and programs. Most important, it takes over staffing. Librarians at these facilities are no longer public servants; they serve at the pleasure of LS&S. Although it has been building its portfolio since the late 1990s, LS&S has met with little competition; its CEO likes to brag that it boldly goes “where angels fear to tread,” namely, into local fights with committed activists who love their libraries and librarians. The LS&S proposal to privatize the Prince William County, Maryland, library would have achieved its promised savings by laying off 20 percent of the staff, trimming benefits, and cutting pensions. The library trustees said the proposal was “unfair to employees” and rejected it.

The American Library Association has outlined numerous issues surrounding privatization of libraries: “quality of library services, loss of local community control, governance, loss of control of tax dollars, and collection development.”

The ALA also pointed out that privatization often leads to the loss of community involvement with foundations, nonprofits, and Friends groups.

During the pandemic, local public libraries served as community hubs providing a variety of services; in addition to other services, they distributed more than 2.5 million free, at-home COVID-19 test kits. Forgive me if I don’t see a for-profit, private operator doing that–or providing the other numerous free services that our local library provides–everything from access to computers for poor kids whose homes lack them, to help with tax returns. (Somehow, I doubt these privatized libraries host Drag Queen story hours, either–and I’m sure that’s one reason proponents support them.)

Citizens depend upon their public libraries for access to information–all sorts of information, whether their neighbors approve of that information or not.

Wikipedia identifies five fundamental characteristics of public libraries: they are supported by taxes; they are governed by a board to serve the public interest; they are open to all, and every community member can access the collection; they are entirely voluntary, no one is ever forced to use the services provided and they provide library and information services services without charge.

Wikipedia says “Public libraries are considered an essential part of having an educated and literate population.” Precisely what the Right doesn’t want.

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