Tag Archives: privatization

Hollowing Out The Federal Government

A recent article by two notable scholars of government, Don Kettle and Paul Glastris, reminded me of my old preoccupation with what Americans erroneously call “privatization.” I began to research the issue after watching the very uneven results of then-Mayor Goldsmith’s love affair with the concept. (A search for the term “privatization” through the archives of this blog will return a number of detailed posts on the subject.)

My skepticism begins with the misuse of the term;  unlike actual privatization–which would involve selling off government operations and allowing them to sink or swim in the marketplace (a la Margaret Thatcher), Americans use the term to mean government “contracting out” for goods and services. There are obviously times and tasks where contracting makes sense. My concern is that government isn’t a very good judge of when and what 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 taxpayers.

And of course there’s the predictable “crony capitalism,” contracts rewarding campaign donors with lucrative contracts at taxpayer expense.

A few years ago, I came across data suggesting that the federal government actually pays the salaries of some 17 million full-time contract workers who aren’t technically government employees.

A number of the problems created by extensive federal contracting are the subject of the linked essay, titled (tongue in cheek) “To AOC: Only you can fix the federal government.”

You and other progressive leaders have bold ideas for how government can help people and save the planet. The Green New Deal. Medicare for All. Free college. A massive investment in public housing. We aren’t in full agreement with that agenda, but that’s not our point. Our point is that to achieve your goals, you’re going to need a federal government as robust as your ideas. And right now, you don’t have it.

Instead, the government agencies you’ll need to carry out your policies are a disaster waiting to happen. Like the infrastructure you and others rightly say needs rebuilding, our federal bureaucracies are a patched-together mess that can barely handle the weight of the burdens already placed on them.

The essay pointed to specific examples, including the GOP’s assault on the Internal Revenue Service.

In 2004, George W. Bush’s administration turned the job of collecting the hundreds of billions of dollars that tax scofflaws owed Uncle Sam over to private collectors, with the idea that they could do a better job than federal workers. The private collectors brought in money—but just $86 million, and most of that was from easy-to-collect cases that began running out after just a few months. Then the IRS brought the work back in-house, and its agents collected almost two-thirds more money in just a few months, and it came from the harder cases the private companies had left behind. Relying on private tax collectors actually ended up costing the federal government money.

But the Republicans weren’t done. They slashed 20 percent of the IRS’s budget and 22 percent of its staff from 2010 to 2018. For people making more than $1 million, the number of tax audits dropped by 72 percent—and the money the IRS collects from audits fell by 40 percent.

Government operations stymied by a lack of skilled in-house personnel include–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).

The list goes on. Click through and read the litany, if you want to set your hair on fire…

What the essay makes clear is something that far too few citizens recognize: it isn’t enough to have good policies. Passing a law to do X or Y is only the 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.

We’ve long relied on service contractors beyond the point of reason. We now have contractors who do more or less the same work as civil servants, sitting in the same offices, for years on end, typically at far higher cost, often using government email addresses so it’s impossible for anyone on the outside to know whether they’re dealing with a government official or a contractor. We have contractors who oversee contractors, contractors who write policy for government officials, and federal contract managers who are too few in number and too outgunned in skills to manage it all.

The hollowing out of government’s management capacity is the result of the GOP’s persistent attacks on the civil servants who work for it.

It has to change.

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Private Prisons And The 13th Amendment

If I was compiling a list of policies the next administration needs to change, it would be  truly enormous, and fairness compels me to acknowledge that not all of the entries can be attributed to Trump. Previous administrations got swept up into privatization ideology, and some of the consequences weren’t pretty.

Privatization as practiced in the U.S. wasn’t ever true privatization. In England, for example, Thatcher sold off railroads and steel mills that were then operated as private businesses–they paid taxes, and if they failed, they failed. In the U.S., what we call “privatization” is really “contracting out”–government agencies entering into contracts with private companies or not-for-profit organizations to assume primary responsibility for delivering a government service or performing a government function. Sometimes, that made sense.  Often, however, it has simply been a new form of patronage.

Obviously, there’s a big difference between contracting with a private company for trash removal and authorizing a for-profit company to operate prisons.

Researchers have pointed to the often-horrific consequences of privatizing prisons, so I was interested in a lawsuit that is evidently working its way through the system in Arizona.

The complaint enumerates the issues involved in Arizona’s privatized prisons, pointing out the perverse incentives that govern performance under such contracts. Nothing really new there–the research has long illuminated the extent to which the profit motive is incompatible with proper functioning of penal institutions.

What was new (at least to me) and intriguing was the plaintiff’s assertion of a 13th Amendment claim. The 13th Amendment abolished slavery and involuntary servitude. Here are pertinent portions of the argument from the Complaint.

The amendment prohibits “all forms of involuntary slavery of whatever class or name.” Slaughter-House Cases, 83 U.S. 36, 37 (1872). That means it “denounces a status or condition, irrespective of the manner or authority by which it is created.” Clyatt v. United States, 197 U.S. 207, 216 (1905). The amendment is “a promise of freedom” which includes “freedom to go and come at pleasure and to buy and sell when [one] please[s].” Jones, 392 U.S. at 443 (internal quotation marks omitted). It is certainly not limited to those with African ancestry. “It was a charter of universal civil freedom for all persons, of whatever race, color, or estate, under the flag.” Bailey, 219 U.S. at 240-41.

“The most basic feature of ‘slavery’ or ‘involuntary servitude’” is “the subjugation of one person to another by coercive means.” United States v. Nelson, 277 F.3d 164, 179 (2d Cir. 2002). Professor Akhil Amar uses this definition of “slavery”: “A power relation of domination, degradation, and subservience, in which human beings are treated as chattel, not persons.” Akhil Reed Amar, Child Abuse As Slavery: A Thirteenth Amendment Response to Deshaney, 105 Harv. L. Rev. 1359, 1365 (1992)…

Plaintiffs are being held in cages for the financial benefit of private entities which make billions of dollars in revenue from this captivity.The private prisons receive the “fruits of prisoners’ economic value and labor.” In short: the prisoners have been effectively transformed into property, valued only in terms of their “compensated man-days.” The allegations in the Complaint plausibly state that their status falls within the Thirteenth Amendment’s scope. If holding people in captivity in this way were happening to anyone but prisoners, everyone would call it what it is: slavery. It is at minimum “involuntary servitude.”

This argument gains persuasive power from the national history Americans are only beginning to admit. Books like These Truths by Jill LePore and The New Jim Crow by Michelle Alexander testify to racists’ unremitting efforts to keep African-Americans in servitude. Criminal Justice research supports their recitation of that history, the disproportionate imprisonment of Blacks and poor people, and more recently, the unconscionable behaviors of private prison companies.

Criminals should be jailed. Government clearly has the right  and duty to protect its citizens and to pursue public safety by incarcerating or otherwise sidelining dangerous people. That said, there are few governmental tasks less suited to “privatization” and the pursuit of profit.

Put this reform on our very extensive list.

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Reich’s Rules

What American politicians call privatization has been a focus of much my academic work.(If you go to the “Academic papers” section of this blog and search for privatization, you’ll find a lot of entries.)

I phrase it as “what American politicians call privatization” because–as Morton Marcus pointed out to me years ago– genuine privatization is what Margaret Thatcher did in England. She sold off government-owned assets like railroads and steel mills to the private sector, after which they were private. They paid taxes, and either prospered or failed, but government no longer had much to do with them.

What Americans call “privatization” is very different. The accurate term is “contracting out” –and it refers to the decision by government agencies to provide government services through for-profit or non-profit surrogates. That process should not be confused with procurement–no one expects city hall to manufacture its own computers or the myriad other items it requires in order to function. (Admittedly, the line can get blurry: contracting with a private paving company to fill potholes, for example. But few privatization critics are troubled by those long-standing practices.)

It is important to recognize that when a government agency contracts with a surrogate to provide services that the agency is legally required to provide, government remains legally responsible for the proper delivery of those services.

Robert Reich recently enumerated five rules that should govern these decisions. His rules are very similar to those on my class lecture on the subject.  It should be obvious, for example, that government shouldn’t contract out when keeping a service in-house will be more efficient and cost-effective.

Other rules are less obvious, but no less important.

  • Don’t privatize when the purpose of the service is to bring us together – reinforcing our communities, helping us connect with one another across class and race, linking up Americans who’d otherwise be isolated or marginalized.

 This is why we have a public postal service that serves everyone, even small rural communities where for-profit private carriers often won’t go. This is why we value public education and need to be very careful that charter schools and other forms of so-called school choice don’t end up dividing our children and our communities rather than pulling them together.

  • Don’t privatize when the people who are supposed to get the service have no power to complain when services are poor.

 This is why for-profit prison corporations have proven again and again to violate the constitutional rights of prisoners, and why for-profit detention centers for refugee children at the border pose such grave risks.

  • Don’t privatize when those who are getting the service have no way to know they’re receiving poor quality.

 The marketers of for-profit colleges, for example, have every incentive to exploit young people and their parents because the value of the degrees they’re offering can’t easily be known. Which is why non-profit colleges and universities have proven far more trustworthy.

  • Don’t privatize where for-profit corporations face insufficient competition to keep prices under control.

 Giant for-profit defense contractors with power over how contracts are awarded generate notorious cost overruns because they’re accountable mainly to their shareholders, not to the public.

Perhaps the most troubling contracting practices involve the military; contract soldiers are uncomfortably similar to mercenaries, and the growing use of private companies in America’s  various wars and military actions generates a number of very thorny issues, a topic I’ve explored elsewhere.

One of America’s many overdue conversations should address what services we expect  our various levels of government to provide and the nature and extent of the evidence needed to support a decision to outsource service delivery.

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Who Decides?

I’m a big fan of “connecting the dots.” Too often, We The People and the lawmakers we elect fail to recognize important connections; we treat issues in isolation, and often don’t understand why our “fixes” to those problems don’t work.

In all fairness, the connections are often obscure.

Recently, the Executive Director of  In the Public Interest pointed out a connection that I had totally missed, even though I study both privatization and democratic processes. He warned that privatization is part of the ongoing assault on democracy.

“It couldn’t be clearer that the fundamental democratic right to have our voices — and votes — heard is under attack. Just this week, Wisconsin’s Republican-dominated legislature slashed early voting…in the middle of the night…during a lame duck session. Bottom line: there are politicians, conservative think tanks, and corporate funders who don’t want people to be able to vote. But we’ve learned through our work that there’s another — and perhaps deeper — threat to democracy spreading nationwide, and that is privatization. When corporations take control of public goods like water, transit, and schools, we give them the ability to make decisions that should be made democratically by us, the public.”

I often tell my students that the Bill of Rights, properly understood, is America’s answer to a foundational governance question: who gets to decide? Who decides what political opinion you hold, what prayer you say (or whether you pray at all), what book you read, how many children you have, who you are permitted to publicly love?

The Bill of Rights answers those and other questions by affirming the individual’s right to make those decisions for him/herself, by guaranteeing that we each have a significant measure of personal autonomy (otherwise known as self-government). Liberty, to the Founders, meant limiting the power of government to dictate what the Supreme Court has called the “intimate” decisions of its citizens.

Democratic theory is less prescriptive than the Bill of Rights, but it rests on the assumption that citizens’ assent to important aspects of their governance is a necessary element. Politicians and political scientists can and do disagree on just what those decisions are, about what decisions must be made by the citizens in order for a system to be considered democratic, but there is unanimity on the principle that “the people” must have the final say on the issues that are properly before them.

When government contracts out, it is authorizing a private entity to make decisions relevant to the contracted function. In many cases, that’s not a problem. (Leaving the decision about how much asphalt should be put in a pothole is hardly an assault on democracy.) When government turns over control of public goods like water, transit, and especially schools, that’s a different matter, and much more troubling.

Most of the considerable criticism of privatization has revolved around management issues, cost accounting, and occasionally corruption and “pay to play.” I’ve raised constitutional concerns as well.

I think we need to add the effect on democracy to the list. Have we turned over to private enterprise an area of decision-making that ought rightfully be democratically decided? What are those areas? And what are the dangers of contracting them away?

The answers will vary, but we need to ask the questions.

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The Submerged State

Every once in a while, I read something that sparks an epiphany–usually, it’s the sort of “aha” moment that is followed by “well…DUH. I should have seen that before now.”

I’ve just begun reading a book by Suzanne Mettler titled The Submerged State, and I’ve had just such a moment.

Mettler’s book focuses upon the nature of government social welfare programs in the United States, and the fact that most of them are “submerged”–accomplished through tax credits and other incentives to the private sector, making them effectively invisible to most Americans. As she says, the policies of the submerged state obscure the role of government and exaggerate that of the market, leaving citizens unaware of how power really operates.

Mettler defines the submerged state as the “conglomeration of federal policies that function by providing incentives, subsidies, or payments to private organizations or households to encourage or reimburse them for conducting activities deemed to serve a public purpose.”

Mettler published the book during the waning days of the Obama administration, and she attributes much of the resistance to Obama’s agenda–and the accusations that he was trying to enlarge the role of government– to the widespread lack of understanding of what government already does, how it does it, and who it benefits.

The recipients of the bulk of government’s social benefits (aka “welfare programs”), as she points out, are disproportionately higher income Americans. Take the home mortgage exemption, for one example. Not only do higher-income taxpayers benefit more than those with smaller mortgages and lower incomes, but a significant number of low-income Americans don’t have enough deductions to itemize, and thus must forego the deduction entirely.

Much of my earlier academic research focused on so-called “privatization,” which in the U.S. means “contracting out”–the practice of government delivering services through a for-profit or non-profit surrogate. There are plenty of documented problems with the wholesale adoption of this practice (sometimes it makes sense, but all too often it is more costly and less accountable than doing the government’s business through public employees), but one problem that is rarely noted comes from the inevitable lack of transparency. People receiving government services frequently don’t realize that it is the government that is providing those services.

I’m just at the first chapter of Mettler’s book, so I don’t yet know whether she includes another consequence–one that is particularly corrosive to civic unity. When people don’t recognize that they are receiving benefits from government programs, because those programs are “submerged,” they are prone to look unfavorably at the more public programs that benefit other people.

I’m sure I’m not the only person to notice that the widespread animus toward “welfare” (aka programs to assist the poor) is rarely invoked in discussions about Social Security and Medicare. (And no, those programs are not “insurance” as that term is commonly understood.)The same phenomenon is at work in accusations that the poor don’t pay taxes; to many Americans, “taxes” means income taxes–not the sales taxes, gasoline taxes, property taxes and payroll taxes that everyone must pay and that constitute a significant portion of overall tax collections.

When a burden or benefit is universal, it elicits a different response.

A significant amount of resentment is generated when people think that other people are getting benefits that they don’t get, and that were paid for by “their” tax dollars. If they were aware of the extent to which they themselves are the beneficiaries of taxpayer largesse, it might ameliorate some of that resentment.

I’m looking forward to reading the rest of this book–and wondering why in the world I didn’t see the nefarious consequences of “submerged” programs before this.

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