Tag Archives: privatization

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.

 

 

 

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.

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.

 

Vouchers, Education and Democracy

I was recently asked to write the entry on school vouchers for publication in the upcoming Encyclopedia of Public Administration. Here it is.  (Warning: it’s longer than my usual posts.)

Introduction. School voucher proposals gained traction in the late 1980s as part of a broader movement to privatize services previously delivered by government through its employees. Unlike the privatization program undertaken by Margaret Thatcher in England, in which public enterprises were sold off to the private sector, relieving government of further responsibility for their operation, in the United States privatization referred to the practice of contracting out delivery of government’s programmatic responsibilities to for-profit or non-profit third-party surrogates. Enthusiasm for this method of public service delivery led to a significant expansion of such practices, generating mixed results depending upon the service involved and the adequacy of government oversight. Voucher programs allowing parents to enroll their children in participating private schools of their choice, and to pay the tuition in full or in part with a government-issued voucher, have become one of the more contentious elements of the larger privatization agenda.

Enthusiasm for a market-based approach to schooling received impetus from a 1990 study by John Chubb and Terry Moe, Politics, Markets and America’s Schools.  Although several researchers subsequently challenged the data and methodology used in that study, which painted a grim picture of America’s schools, fewer critics initially took issue with their definition of “effective schooling,” which was to be measured against academic criteria only. For Chubb and Moe and those who agreed with their prescription for school privatization, the mission of the schools was limited to imparting competency in the math, science and language skills deemed crucial to economic self-sufficiency and America’s ability to succeed in the global marketplace. Only later did criticism of that premise become a major point of controversy between proponents and opponents of school vouchers.

Philosophy and Partisanship. At its intractable extremes, the school voucher debate is a conflict between two long-standing elements of the American political tradition: the commitment to personal choice and individual freedom, on the one hand, and an equally compelling belief in the importance of a common civic infrastructure and collective interests on the other. Debate over vouchers has become so contentious in large measure because it reflects the tension between these largely incompatible political priorities.

Rather than debating whether public schools are as deficient as some have portrayed them, and if so, in what respects, or debating the merits of one reform measure over another, the policy issue has become whether America should continue to support a system of free, publicly-controlled schools or whether government’s educational role should be reduced to that of funder, enabling families to use a specified number of taxpayer dollars to buy educational services in the marketplace.

Initial support for school vouchers came from several interest groups: Catholics desiring financial support for their parochial schools; political libertarians opposed to government control of education on ideological grounds; business interests concerned about public schools’ ability to produce a skilled workforce; and the Christian Right, which had advocated for Protestant prayer and religious instruction in the public schools and had been rebuffed by the Supreme Court in a series of cases begining in 1962, when Engel v. Vitale struck down the practice of official prayer in public school classrooms. These constituencies were, and are, largely aligned with the Republican Party, while the most reliably anti-voucher interest groups— public educators, especially teachers’ unions; the African-American community; and civil libertarians—represent important Democratic constituencies. Voucher programs have thus become a partisan issue. (Kennedy 2001) The political dimension of the voucher debate has been underscored by the very active role taken by the American Legislative Exchange Council (ALEC), a corporate lobbying organization that supports voucher programs. ALEC’s education task forces are funded primarily by libertarian interests, including the Charles Koch Foundation, the DeVos Foundation, and the Friedman Foundation. (Shaffer, Ellis & Swensson 2018)

Voucher proponents argue that competition in education leads to better schools at less cost. They point to test results showing that student achievement in private schools has historically been superior to the performance of students attending public schools. Opponents respond that much of the research purporting to compare public and private school outcomes fails to control for major differences in student body composition, including but not limited to parental socio-economic status and educational motivation.

Opponents and even supportive academics also warn of potentially damaging social consequences. John Witte, an educational researcher who evaluated and supported one of the earliest voucher programs, a 1990 experiment in Milwaukee, nevertheless noted that the program led to more segregation in the schools than otherwise would have been the case. (Witte 2000) Other researchers have worried about religious balkanization, since an estimated 80% of the private schools participating in voucher programs are religious. Still others have expressed concern that voucher programs largely abandon the civic mission of the schools. (Covaleskie 2007)

Legal issues. As voucher programs grew, opponents raised both First Amendment and state constitutional concerns, arguing that the use of public funds to pay tuition at religious schools violated both the First Amendment’s Establishment Clause and state-level prohibitions known as “Blaine Amendments.” The Supreme Court considered the First Amendment arguments in 2002, in Zelman v. Simmons-Harris. That case challenged an Ohio voucher program that affected only the Cleveland City School District. In 1999 and 2000, 82% of the schools participating in the Cleveland program were religiously affiliated, and 96% of the students using the vouchers were enrolled in one of those religious schools. Both the District Court and the Court of Appeals ruled for the parents who were challenging the program; however, the Supreme Court reversed. The Court accepted the defense’s argument that the vouchers were payments to the parents, whose choice of religious schools was made freely and voluntarily, and that as a result, the vouchers could not properly be characterized as tax support for the religious schools. Since the choice of school was made by the parents, and the program’s goal of allowing low-income children to escape a failing school system was secular, the Court held that the voucher program did not run afoul of the Establishment Clause.

State courts have largely adopted the logic of the Zelman decision, allowing voucher programs to operate despite state constitutional provisions forbidding the payment of state tax dollars to religious institutions. These provisions, commonly called “Blaine Amendments,” were named for Congressman James Blaine, who sponsored a federal constitutional amendment in 1875 that would have forbidden public funding of religious schools. Blaine’s amendment was seen as an effort to prevent government from supporting the Catholic schools that had originally been established in response to Protestant bible-reading in public school classrooms.  Blaine’s effort at a federal amendment failed, but thirty-eight states subsequently added such provisions to their state constitutions. In sixteen states where Blaine Amendments seemed likely to preclude judicial approval of voucher programs, so-called “neo-vouchers” have used tax credits to circumvent the problem; the subsidies have been deemed “tax reductions” rather than direct spending. Arizona is the most prominent state employing this tactic; its Supreme Court upheld the state’s “tax credit scholarships” in 1998. In two states, Massachusetts and Michigan, both vouchers and neo-vouchers have been held to violate those states’ constitutions. (Davis 2016)

Performance. Recent research on statewide voucher programs in Louisiana and Indiana has cast doubt on the educational benefits promised by voucher proponents. (Dynarski & Nichols 2017) Public school students who received vouchers to attend private schools subsequently scored more poorly on reading and math tests when compared to similar students who remained in public schools. The magnitudes of the negative impacts were large, and the results could not be explained by the particular tests that were used or the possibility that students receiving vouchers had transferred out of above-average public schools. According to a Brookings Institute overview of available research, a Louisiana public school student who was average in math (at the 50th percentile) and began attending a private school using a voucher declined to the 34th percentile after one year. Students in third, fourth, or fifth grades had a steeper decline, to the 26th percentile. A student at the 50th percentile in reading declined to about the 46th percentile. In Indiana, a student who had entered a private school with a math score at the 50th percentile declined to the 44th percentile after one year. Earlier studies of voucher programs had shown more mixed results when measured by test scores, with scores improving for some students in some places, and failing to improve for other students in other places.

In January, 2018, The Wall Street Journal analyzed data on Milwaukee’s program, the nation’s oldest, and found that the city’s 29,000 voucher students, “on average, have performed about the same as their peers in public schools on state exams.”

A variety of explanations have been offered for the continued lack of evidence that vouchers improve student performance. Among the theories: Public schools have improved more than private ones since the early 1990s; business interests, often lacking background in education, have established schools they are ill-equipped to run; before vouchers, private school classrooms were occupied by children from more privileged backgrounds, and test scores tend to correlate highly with parental income. To date, no consensus has formed around any of these explanations.

Indiana’s results are particularly concerning, because the state has the nation’s largest, and arguably least restrictive, voucher program. Initial enrollment caps have been abandoned, as has the rule that children would not be eligible for a voucher unless they’d attended a public school for at least one year. (The initial justification for vouchers was to allow poor children to leave failing public schools.) The program is no longer limited to poor children; recent research suggests that nearly a third of Indiana’s voucher families could afford private school tuition without state subsidies. (Shaffer, Ellis & Swensson 2018)

Civic Dimension. If communities are created and sustained by the things we have in common, by mutual engagements that build social capital, it is particularly important to consider how overarching values and civic commitments are transmitted, supported and reinforced in a society as heterodox as that of the United States. The public schools have traditionally been seen as important to the forging of social solidarity, and have long been regarded as a public good. The public schools play a major role in introducing students who come from increasingly diverse backgrounds to each other and to America’s civic aspirations. To date, there are no research studies comparing public and private school performance in transmitting civic knowledge or success in encouraging civic behaviors.

Voucher proponents will generally not dispute the classification of education as a public good and except for the most ideological libertarians among them, do support a role for the state: the role of funder. Where they differ from proponents of a strong public education system is on the identity of the provider of educational services. Privatization proponents argue that the market can and should provide the education services and that government should enable individual families to purchase them. On the theoretical level, the voucher debate is one more instance of the tension between the libertarian belief in the efficacy of markets and the primacy of individual choice, and the more communitarian preference for mechanisms that encourage social cohesion.

Funding and Oversight. Education in the United States is a function specifically assigned to the states, and funding for public education has consistently been a major state-level budget item. Given state educational systems’ dependence upon the fiscal health and tax revenues of their home states, school funding and institutional quality across the country has been uneven. Voucher programs must be funded out of those same state budgets, and opponents of those programs charge that they are siphoning off funds desperately needed by the public schools. In Indiana, the state with the country’s largest voucher program, state support for vouchers in 2016-17 totaled 146.1 million dollars; between 2011 and 2017, the state spent 520 million dollars. Public school administrators assert that these are funds that would otherwise have gone to the state’s public schools, while advocates for voucher programs insist that the programs actually save the state money.

The fiscal impact of vouchers, and the veracity of the dueling claims, is difficult to assess for several reasons. Differences in the way in which states construct their programs means that impacts vary from state to state. Voucher proponents’ claim that vouchers save taxpayers money is based upon the fact that most vouchers are issued for amounts that are less than the per pupil cost of educating a child in the state’s public schools. Since the money that follows the child is less than the cost incurred by the public system to educate that child, the public school retains the difference. That claim, however, overlooks two reasons why such savings are more theoretical than real: first, a growing number of students enrolled in voucher programs were never in the public system. Second, there is not a one-to-one reduction of public school expense when a student leaves. For example, if one or two students leave a class of 25, the school system must still provide a teacher, a classroom and supplies for the 23 who remain. The school system must continue to maintain its facilities and pay sufficient personnel to conduct necessary administrative functions. It is only when large numbers of children take vouchers and depart that school districts can realize savings by closing buildings, consolidating classes and firing teachers. Thus far, there has been little to no credible research on the actual fiscal effects of the various iterations of voucher and neo-voucher programs on public school systems.

This lack of research is at least partially due to a lack of data. Oversight of voucher programs by most states has been minimal. Despite the large amounts of money involved, private schools accepting vouchers have not generally been subject to reporting requirements, either curricular or fiscal. In Louisiana, independent reporting found many religious schools teaching creationism in science class and using grossly inaccurate, religiously proselytizing texts in history. In Ohio, a 1999 investigation by the Akron Beacon Journal found school choice legislation had been developed as a quid pro quo for campaign contributions and documented improper political behavior by a local businessman who then established private schools specifically to take advantage of the opportunity created by the legislation. His schools generated 16 million dollars from vouchers in the 1999-2000 academic year; the students who attended his schools were subsequently found to perform more poorly than those in the public schools. In Florida, the Miami News Times won an award for its expose of a voucher program for children with physical and learning disabilities; the paper reported safety violations, physical abuse, frequent relocations, a lack of curriculum, and virtually no state oversight.

Conclusion. The combination of cutbacks to public schools, reports of malfeasance by voucher schools, and the emergence of data undercutting the claim that privatization would improve student performance has dampened much of the initial enthusiasm for school vouchers; however, the programs still have substantial political support. It remains to be seen whether that support can be maintained, and whether private schools accepting vouchers can improve their results sufficiently to justify continuation of these educational experiments.

 

References

 Covaleskie, J.F. 2007. “What Public? Whose Schools?” Educational Studies. Vol.42, #1.

Davis, Carl. 2016. “State Tax Subsidies for Private K-12 Education.” Institute on Taxation & Economic Policy. October.

Dynarski, Mark and Austin Nichols. 2017. “More findings about school vouchers and test scores, and they are still negative.” Economic Studies at Brookings: Evidence Speaks Reports. Vol. 2, #18, July 13.

Kennedy, Sheila Suess. 2001. “Privatizing Education: The Politics of Vouchers.” Phi Delta Kappan. Vol. 82, Number 6. February.

Shaffer, Michael B., John G. Ellis and Jeff Swensson. 2018. “Hoosier Lawmaker? Vouchers, ALEC Legislative Puppets, and Indiana’s Abdication of Democracy”  AASA Journal of Scholarship and Practice. Vol. 14, No. 4 Winter

 

 

 

 

 

 

 

 

 

 

Up In The Air…

Every once in a while, the Indianapolis Star actually carries something we can consider news. (Not often: as I skimmed the paper the other day looking for actual information about the city, municipal and/or state government, area schools, or other coverage that could be classified as news, I came across several sports stories and an article–I kid you not–about a local family being reunited with their lost cat….)

One recent article that was newsworthy raised questions about privatization and a living wage.

The article began by profiling one of the baristas who works at the Indianapolis airport, noting that like most of the airport’s workers, she makes 10.50 an hour, and has to work two jobs in order to make ends meet.

In August, the City-County Council passed a proposal that sets a $13 “living wage” for city and county staff members. There are 365 workers earning $9.13 to $12.98 per hour who work for the city and county that will be eligible for pay increases.

But not everyone who works for the City will see a raise.

Reed, and nearly 100 cashiers, coffee baristas, janitors and service workers at the airport, argue that the city’s recent move to increase municipal workers’ minimum wage to $13 an hour should apply to them, too.

However, because the Indianapolis International Airport — ranked the top airport in the country five-straight years — has outsourced its labor to private companies through public-private partnerships, airport workers will not see those wage increases.

The article noted that airport privatization began with former Republican Indianapolis Mayor Stephen Goldsmith in 1995.  Ours was the country’s first full outsourcing of an airport. Goldsmith declined to comment on the Star’s report, but was quoted on the subject from a previous article:

 “I wanted to market-test whether a private company that specializes in airport management, with access to worldwide technology and best practices, could produce more customer satisfaction, better airline relationships and more net revenue while holding down increases in passenger enplanement costs,” Goldsmith told Governing Magazine in April.

Goldsmith was a major proponent of what is incorrectly called privatization (real privatization occurs when government simply “sells off” a function to the private sector a la Margaret Thatcher in England, and is thereafter not involved). What we call privatization is really contracting out. Government is still responsible for supplying the service, but rather than employing people directly, it hires companies or organizations whose employees provide it on government’s behalf.

One of the arguments for these arrangements–sometimes called “third-party government”–has been that private companies could do the work more cheaply. More recent research suggests the savings are largely illusory when the costs of negotiating and monitoring the contracts are factored in. (Unlike government, private companies bidding on government contracts also have to pay taxes, which adds to their costs.)

To the extent savings are realized, it’s usually because the private sector employees are paid less than their government counterparts.

The public administration literature suggests that actual experience with contracting has diminished its attractiveness to government agencies. Management problems, loss of institutional competence and other unanticipated consequences have taken the bloom off that particular rose, and many services that were enthusiastically outsourced by proponents like Goldsmith are being brought back “in house.”

That national reevaluation isn’t likely to be much comfort to the underpaid airport workers who are doing public jobs that benefit their communities but not making the same wage that they would make if they were on government’s direct, rather than indirect, payroll.