I am one of those tiresome academics who has repeatedly criticized the so-called privatization of government functions.
I say “so-called” because what Americans call privatization is no such thing. Actual privatization would require government to sell off or otherwise abandon a particular activity, and let the private sector handle it. (Much like Margaret Thatcher selling England’s steel mills to private-sector interests.)
What Americans call privatization is more accurately described as contracting out; government retains responsibility for a service and the obligation to fund it, but delivers the service through a third-party surrogate, either for-profit or not-for-profit.
There are certainly instances where choosing such a surrogate makes sense; unfortunately, we Americans tend to embrace fads in government as elsewhere. So rather than engaging in analyses of risk and reward for each proposal to contract, too many public entities have accepted the argument that nongovernmental actors will do a better job, or be less expensive, no matter what is to be outsourced.
Research results strongly suggest otherwise. Sometimes, contracting is appropriate; often it is not.
With the publication of a new in-depth report, In the Public Interest has illustrated the often pernicious effects contracting can have on equality. The report centers on five ways in which contracting out exacerbates inequality:
User-funded contracting. Public budgets have tightened all across the country, largely due to the American public’s unwillingness to pay taxes to support services we continue to demand. As a result, some jurisdictions are allowing contractors to charge fees to end-users to subsidize or completely fund an outsourced service.
This is increasingly happening in areas where citizens have little to no political voice. In private probation, for example, offenders are expected to pay for everything from their own drug testing to the costs of ankle-bracelets, despite the fact that as a group they lack the resources to do so.
Rising rates. Residents of places that have privatized critical public services such as water or transit have experienced steep increases in their rates. Some of these increases can be attributed to the profit motive, but in other jurisdictions—like my own—the increases mask desperate, clandestine efforts to shift the costs of public infrastructure from taxpayers to ratepayers. (In Indianapolis, the city sold the water company, which—thanks to deferred maintenance needs—had a negative value of several billion dollars. As part of the deal, the purchasing entity, a nonprofit, “adjusted” its payments in lieu of taxes (PILOT) obligation, upward. That allowed the city to float bonds, repayable from the artificially increased PILOT, and use the proceeds to pave deteriorated streets. The result was to shift the costs of infrastructure repair from general tax revenues to utility ratepayers. It would be hard to think of a more regressive strategy.)
Cutting the social safety net. Programs like Medicaid and food assistance are often subjects to privatization experiments, and the report notes that the impact can be
tragic. Contractors have increasingly taken over critical social services like child foster care services, welfare, the distribution of food assistance, Medicaid, and child support services. But as the report details, the complex social problems faced by families and children who utilize these services are difficult to address using a privatization model, and many social services contracts have financial incentives that inadvertently perpetuate cycles of poverty and divert money from critical programs to corporate profits.
Indiana, again, provides an example. Then-Governor Mitch Daniels attempted to outsource welfare intake; as a result, many recipients were denied benefits to which they were clearly entitled, and others endured long waits and confusing, burdensome processes. The results were so negative that the effort was discontinued, but the ensuing lawsuits cost the state millions of dollars that might otherwise have provided needed services.
A race to the bottom for workers. One of the recurring criticisms of privatization has been that, when private companies take control of a public service, they often slash wages and benefits to cut costs, replacing stable, middle class jobs with poverty-level jobs. The report confirms the criticism.
Similarly, the report underlines increasing recognition that privatizing schools, especially, increases socioeconomic and racial segregation. As the text notes, introducing private interests into things like schools and public parks can—and often does–radically impact access for certain groups.
The report is a sobering reminder that there is a critical difference between procurement—government purchases of such things as street paving or computers—and contracting out delivery of core governmental responsibilities. It turns out that “Weakening democratic control over public goods and services increases economic, political, and racial inequality.”