Privatization — The Big Joke That Isn’t Funny

By: Paul Buchheit

The privatization of public goods and services turns basic human needs into products to buy and sell. That’s more than a joke, it’s an insult, it’s a perversion. It generally benefits only a privileged group of businesspeople and their companies while increasing inequality and undermining the common good.

Various studies have identified the ‘benefits’ of privatization as profitability and productivity, efficiency, wider share ownership and good investment returns. These are business benefits. More balanced studies consider the effects on average people, who have paid into a long-established societal support system for their schools and emergency services, water and transportation systems, and eventually health care and retirement benefits. These studies have concluded that:

  • Privatization has generated large profits for new owners but these have not been shared with the general public.
  • The potential benefits of privatization are often outweighed by high contracting costs and opportunism.
  • Most privatization programs appear to have worsened the distribution of assets and income, at least in the short run.

While privatization may lead to efficiencies in producing goods, it is generally only true under conditions of competition and regulation. The New Jersey Privatization Task Force asserted that “States that have had the most success in privatization created a permanent, centralized entity to manage both privatization and related policies aimed at increasing government efficiency.”

In the U.S. and around the world, privatization has simply not worked in industries that provide essential public goods and services:

Education

The notion that the public school system needs to be ‘saved’ by charter schools is not supported by the facts. A Stanford University study “reveals in unmistakable terms that, in the aggregate, charter students are not faring as well as their traditional public school counterparts.” A Department of Education study found that “On average, charter middle schools that hold lotteries are neither more nor less successful than traditional public schools in improving student achievement, behavior, and school progress.”

Charter schools also can take money away from the public system, and their teachers have fewer years of experience and a higher turnover rate.

Health Care

Our private health care system has failed us. We have by far the most expensive system in the developed world. The cost of common surgeries is anywhere from three to ten times higher in the U.S. than in Great Britain, Canada, France, or Germany.

Everyone has their hand in the money pot: insurance companies, pharmaceutical firms, physicians, hospitals, the AMA, lobbyists. But 50 million Americans can’t afford the price of health insurance.

Medicare, on the other hand, which is largely without the profit motive and the competing sources of billing, is efficiently run, for all eligible Americans. According to the Council for Affordable Health Insurance, medical administrative costs as a percentage of claims are about three times higher for private insurance than for Medicare.

Banking

Banking and finance are largely responsible for the mortgage crisis, the largest private failure in history. The public need for home value security, especially among low-income people whose homes were their only source of wealth, gave way to corporate greed. Estimates for bailout funds from the Treasury and the Federal Reserve range between $3 trillion and $5 trillion.

The industry is bloated with deceit and depravity. Financial insiders have figured out how to cheat other investors by fixing interest rates, creating sure-to-fail financial productstiming the purchase of a stock option to precede good corporate news, or timing the sale of a stock option to precede bad corporate news.

Hope for the future has surfaced in public banks, such as the Bank of North Dakota, which prioritize loans for small business, sustainable agriculture, worker-owned coops, renewable energy, and other “people-oriented” needs.

Prisons

Corrections Corporation of America has offered to run the prison system in any state willing to guarantee that jails stay 90% full. “This is where it gets creepy,” says Business Insider’s Joe Weisenthal, “because as an investor you’re pulling for scenarios where more people are put in jail.”

This push for privatized prisons is occurring at a time when almost half of the inmates in federal prisons are jailed for drug offenses, and when African Americans constitute 53.5 percent of all persons who entered prison because of a drug conviction.

Studies show that private prisons perform poorly in numerous ways: prevention of intra-prison violence, jail conditions, rehabilitation efforts. A 10-month investigation by the New York Times concluded that “the state’s halfway houses have mutated into a shadow corrections network, where drugs, gang activity and violence, including sexual assaults, often go unchecked.” Yet New Jersey Governor Chris Christie insisted that “Places like this are to be celebrated.”

The U.S. Department of Justice offered this appraisal: “There is no evidence showing that private prisons will have a dramatic impact on how prisons operate. The promises of 20-percent savings in operational costs have simply not materialized.”

Water and Other Utilities

How’s this for a profit incentive? Nestle buys water for about $.00008 per gallon, and sells it back at a rate 127,000 times higher.

The vital human resource of water is being privatized and marketed all over the country. In Pennsylvania and California, the American Water Company took over towns and raised rates by 70% or more. In Atlanta, United Water Services demanded more money from the city while prompting federal complaints about water quality. Shell owns groundwater rights in Colorado, oil tycoon T. Boone Pickens is buying up the water in drought-stricken Texas, and water in Alaska is being pumped into tankers and sold in the Middle East.

A 2009 analysis of water and sewer utilities by Food and Water Watch found that private companies charge up to 80 percent more for water and 100 percent more for sewer services.

The horror stories go beyond water, to roads and parking facilities and school buses. Chicago surrendered its parking meters for 75 years and almost immediately faced a doubling of parking rates. California’s experimentswith roadway privatization resulted in cost overruns, public outrage, and a bankruptcy; equally disastrous was the state’s foray into electric power privatization. In Pennsylvania, an analysis of school busing by the Keystone Research Center concluded that “Contracting out substantially increases state spending on transportation services.”

Military

Blackwater, which renamed itself Xe, and then ACADEMI, to repress bad memories, is the most obvious example of military contract failures. The company, which landed contracts worth almost a half-billion dollars between 2004 and 2006, became infamous for abuses at the Abu Ghraib prison near Baghdad, the shootings of 17 Iraqi civilians in 2007, and years of fraudulent billing at U.S. taxpayer expense.

A study by the Commission on Wartime Contracting found that “as much as $60 billion…has been lost to contract waste and fraud in America’s contingency operations in Iraq and Afghanistan.”

Privatization around the World

Where to start? Perhaps with the suicides in India after Monsanto’s GM crops destroyed the livelihoods of small farmers, or the suicides in Apple’s Foxconn factory in China, or the suicides in France after massive job cuts and harassment of employees at France Telecom.

Or with the takeover of water rights by Bechtel in Bolivia and Coca Cola in India and Mexico, and the exploitative profitmaking on water in Australia and Argentina and South Africa and numerous other countries.

Or with the too-rapid privatization of a ‘liberated’ Russia in the early 1990s, which led to a degree of inequality that literally shortened the lives of citizens; and similarly in Mexico when NAFTA’s concessions to big agribusiness doomed as many as a million small Mexican farmers, many of whom came to the U.S. searching for work.

Or with the privatized rail system in London, where the profit-seeking companies chose financial managers instead of railroad managers to run the trains, and where “profiteering” with public money caused failed hospitalprojects in the UK and Canada, numerous other mismanaged projects in Canada, and most recently the private security debacle at this year’s Olympics.

Or with the textbook case in Latin America, which experienced a surge in inequality after the imposition of neoliberal IMF and World Bank policies in the 1980s, and then an equally dramatic decrease in inequality after the “Washington consensus” was scrapped in the late 1990s.

As summarized by the UN’s International Policy Centre, “Privatisation has failed on several counts…the focus of investors on cost recovery has not promoted social objectives, such as reducing poverty and promoting equity.” Policy Dialogue adds the reminder that the most prosperous countries in recent years – China, India Vietnam – have relied on millions of small enterprises rather than a large-scale privatization policy.

Conclusion

The League of Women Voters takes the position that “Privatization is not appropriate when the provision of services by the government is necessary to preserve the common good, to protect national or local security or to meet the needs of the most vulnerable members of society.”

President Obama helps us understand the business point of view: “If you’re a head of a large private equity firm or hedge fund, your job is to make money…It’s not even to create a successful business — it’s to make sure that you’re maximizing returns for your investor.”

“Public good” and “profit motive” don’t mix. It’s a cruel joke to put them together, except in the distorted world of people who view the needs of society as products to be bought and sold.

About the author: Paul Buchheit is a college teacher and the Founder of several social justice and educational websites such as Us Against GreedPay Up Now and Rapping History. He is also the Editor and main author of American Wars: Illusions and Realities’ (Clarity Press).

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