Tag Archives: privatization

Infrastructure, Part Two

Yesterday, I shared Adam Gopnik’s “take” on Republican objections to infrastructure investments. But it turns out that he is not the only one considering the ideological roots of the Right’s disinclination to invest tax dollars in public goods like  roads, bridges, and railroads.

A lengthy post at Daily Kos ticked off some specifics.

Over and above the general animus toward government, manifested in a desire to “starve the beast,” the post pointed to the Right’s continuing romance with privatization.

More than anything else, this privatization fetish explains Republicans’ efforts to gut and discredit public infrastructure, and it runs the gamut from disastrous instances of privatizing parking meters to plans to privatize the federal highway system.

There has been a good deal written about these and other efforts to outsource what we used to consider public functions, but there has been much less information available about a financing mechanism that makes these privatization deals much more lucrative–private activity bonds.

As the New York Times recently explained,

These deals involve so-called “qualified private activity bonds,” which state and local governments issue on behalf of corporations. The bonds allow companies to borrow at low rates, while the bondholder doesn’t owe federal tax on interest. (If a corporation issued its own bond, it would pay a higher rate and the bondholder would owe tax on interest.) As an article in today’s Times explains, the justification for this sort of treatment is that a private project will fulfill a public need. In practice, it often looks like pork by another name, worth roughly $5 billion a year to corporations that could afford to invest without a subsidy, or to vanity projects — like a winery in North Carolina, a golf resort in Puerto Rico and a Corvette museum in Kentucky.

Meanwhile, across the board spending cuts threaten needless hardship and real suffering, and congressional Republicans won’t even talk about ending or trimming private-activity bond subsidies — or, for that matter, any individual or corporate tax breaks, which total $1.1 trillion annually. $1.1 trillion. That’s more than Medicare and Medicaid combined. It’s more than Social Security. It’s nearly two thirds more than the total cost of all non-defense discretionary spending, the category that includes infant formula for poor mothers and infants. Corporate welfare has never been so costly.

I have a friend who lobbies for socially-responsible organizations–environmental groups, human services nonprofits and the like. When I ask him why the legislature has done thus-and-so he just smiles and tells me to “follow the money.”

These days, greed–masquerading as “creative financing” or “economic development”– consistently trumps the common good.

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The Cost of Saving Money

Last year, In the Public Interest released a report that highlighted a harmful but frequently overlooked way in which our tax dollars are fueling income inequality.

Every time a city or state outsources a public service to a low-wage contractor, the community loses. Taxpayers have to make up the difference in the form of nutrition assistance, healthcare coverage, and other programs designed to help people working for minimum wage and living in poverty. The report included examples from across the country, including public servants in Costa Mesa and Fresno, CA, who either lost their jobs to – or were at risk of being replaced by – low-wage contractors.

There are a number of problems with government outsourcing–aka “privatization”–and a copious academic literature documenting those problems. When government provides services through surrogates–via third-party contracts–it needs different management skills (skills that are relatively rare in government agencies, meaning oversight is hit or miss). Mayors and governors often give in to the temptation to reward their cronies with lucrative contracts. (Indeed, privatization has become the current form of patronage). And the promised savings are rarely realized, even without accounting for the problem identified by the report.

There are certainly times when outsourcing makes sense, but far too often the decision has been made on the basis of a near-religious belief in the superior performance of the private sector. As this report suggests, those perceived “efficiencies” can end up costing us in less visible but no less expensive ways.

There really is no such thing as a free lunch.

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Reduction by Addition

Over at the Washington Post, John DiIlio (late of the Bush White House Office of Faith-Based and Community Initiatives) makes a point I’ve frequently made--if we want to reduce the actual size of government, we need to hire more federal workers.

As DiIlio points out, the number of federal civilian workers (excluding postal workers) has been flat for quite some time. When George W. Bush became president, the executive branch employed about 1.8 million civilians–virtually the same number as when John F. Kennedy won the White House.

There were more federal bureaucrats (about 2.2 million) when Ronald Reagan won reelection in 1984 than when Barack Obama won reelection in 2012 (about 2 million)…

This is the dirty secret behind all those debates over the size of government. Yes, government is big and is dangerously debt-financed, but it is also administered by outsiders — and that is what guarantees that our big government produces bad government, too.

DiIlio calls this state of affairs “Leviathan by proxy,” and it’s an apt phrase.

America has had a 30-plus year love affair with “privatization.” The problem is, what we’ve been doing is not privatization–it’s contracting out, a very different animal. As my friend Morton Marcus is fond of pointing out, privatization is what Margaret Thatcher did; she sold off enterprises that government didn’t need to operate. They became private, they paid taxes, they either prospered or failed. What Americans call privatization is dramatically different–we provide government services through third-party, for-profit or non-profit surrogates.

Not only does this mode of service delivery lead to the inefficiencies and management problems that DiIlio identifies in his article, it makes the size and reach of government less visible. It enables Leviathan.

The last time I looked, there were approximately 18 million people working for federal, state and local governments who were not on any government’s payroll. The number of employees who work for contractors doing the work of government agencies–people whose full-time jobs are to deliver government services and who are paid with tax dollars– dwarfs the number of bureaucrats actually employed by those governments. It is virtually impossible to keep track of them, let alone ensure their accountability–constitutional or otherwise.

As DiIlio notes,

Big government masquerading as state or local government, private enterprise, or civil society is still big government. And privatization that involves “acquisition workforce” bureaucrats contracting out work to entrenched interests is not really privatizing. The growth of this form of big government is harder to constrain, and its performance ills are harder to diagnose and fix, than they would be in a big government more directly administered by an adequate number of well-trained federal bureaucrats.

When you demonize government, but demand services, this is what you get.

It isn’t pretty–and it isn’t privatization.

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Academics Say the Darnedest Things…

It’s too bad that articles in academic journals are so filled with jargon, because they often contain valuable information, or make important points that get ignored or glossed over, even by other members of the academy.

Case in point, a recent article in Public Administration Review, a very highly-regarded journal focusing on issues of public management. The title ” Governance, Privatization and Systemic Risk in the Disarticulated State” was calculated to make your eyes glaze over, and I will admit I only read it because I know both of the co-authors (one is a SPEA colleague) and know them to be first-rate scholars.

Ignore the wonky title. This is yet another analysis of government’s love-affair with privatization.

The authors apply research on “systemic risk” to the public-private partnerships that have become ever more common over the past quarter-century or so, the networks of for-profit and non-profit organizations increasingly used by public-sector agencies to do government’s work and deliver public services. As they note, such public networks are similar to financial systems: they are complex, interdependent and risky. Furthermore, if and when they fail, that failure has “potentially catastrophic” effects on citizens who depend upon public services.

One of those risks is that an organization in one of these privatized networks will try to benefit at the expense of the others. The article cites several examples: halfway houses in New Jersey were found to have falsified records in order to have high-risk inmates placed in their (understaffed) facilities; in Tucson, Arizona, a downtown development project employed a network of developers and consultants that spent millions of taxpayer dollars and failed to produce anything.

The risk isn’t confined to dishonesty and self-dealing. The Providence Service Corporation is the largest provider of privatized social services in North America. When the 2008 Great Recession hit, investors dumped their stock in the company (it went from $36 per share to less than a dollar). The loss of capital threatened the ability of the company to continue delivering services to 70,000 clients.

After an extensive discussion of the nature and extent of the dangers involved, the authors conclude that, “reliance upon third parties to produce government services is fraught with risk at all levels.”

This analysis joins a growing and steady accumulation of evidence that the wholesale embrace of privatization of public services is too often costly, risky and counter-productive.

The rush to privatize–to offload public responsibilities–is part and parcel of the assault on the whole enterprise of government that has always been part of American political discourse, but which really gained traction during the Reagan Administration. It’s an attitude, rather than a philosophy, and it plays to the very American desire to address messy, complicated realities with simple, bumper-sticker remedies.

As we are learning the hard way, government can’t privatize away its responsibilities, and too often, the effort to do just that ends up making matters worse.

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The Devil and the Details

I see where applications for Indiana’s private school vouchers have doubled, in the wake of the legislature’s action last session relaxing the criteria.

School Choice Indiana’s president was quoted as ecstatic, and noted that participation in the program has quadrupled since it was first introduced.

Happy days. Public schools not up to snuff? Don’t bother fixing them–privatize! (We all know that government can’t do anything right, and the private sector can’t do anything wrong.)

I’m sure it doesn’t mean anything that in Madison, Wisconsin, private schools that are currently participating in that state’s voucher program are vigorously resisting proposed new requirements that they make public their students’ achievement data.

Accountability is evidently only for public schools.

The sponsor of the Wisconsin measure, Senator Luther Olsen, is the Republican chair of the state legislature’s Education Committee. He wants the Legislature to be a “careful steward of taxpayer dollars.” As he put it, “No matter if you’re a public school, a charter school or a choice school, if you get a check, you should get a check up.”

That seems eminently reasonable. If tax dollars are going to private schools, the very least we should expect is information about the effectiveness of the programs those dollars are supporting. Furthermore, if parents are going to make informed choices about where to send their children to school, it seems only fair that they should have access to basic information about the performance of the schools they are considering.

According to news reports, however, Wisconsin’s non-public schools are adamantly opposed to making their results public, and the legislature is unlikely to pass the measure.

Interesting, isn’t it? The most vocal critics of public schools–the advocates and beneficiaries of voucher programs that bleed resources from the public system to support their own institutions, the people who insist upon testing and accountability for public schools–aren’t so enthusiastic about performance reviews when they are the ones being evaluated.

I guess sauce for the goose gets kind of bitter when it’s poured on the gander.

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