The Problem With Privatization
Posted by Thomas L. Knapp on May 15, 2009 in Commentary • 9 commentsOver the course of the last 25 years or so, “privatization” has gone from innovative idea to over-used buzzword to standard government operating procedure (often described as “public-private partnerships”).
Last week, the National Aeronautics and Space Administration announced its own privatization initiative: NASA intends to pay private firms to provide interim rockets and crew capsules while it develops a government replacement for the shuttle program. Other recent privatization trial balloons cover everything from Internet governance at the international level to foster care at the state level.
The idea behind privatization is that the private sector — the market sector — operates more “efficiently” than government, providing cost savings to the taxpayer. Company X, we’re told (probably truthfully) can produce the widget for a buck, where a state-owned and operated factory would require two bucks to produce the same widget.
That, of course, raises the question of what we need government for. Why not just buy the things we want on the free market in the first place, rather than passing our money to market providers through the hands of inefficient government bureaucracy, driving the total cost back upward toward that “inefficient government” price?
Convinced anarchists need no more justification than that question to reject privatization outright. The unconvinced, however, may require more evidence for the unacceptability of privatization. That evidence is abundant.
Privatization, as it is currently practiced, strengthens the state and weakens the private sector. While it was originally sold as bringing “market values” to “public sector” operations, in practice exactly the opposite has happened.
First of all, “privatization” is a misnomer. When a government project is “privatized,” the state generally retains substantial authority over that project — and takes a substantial financial rakeoff for “administration” and “oversight.” The retained authority keeps the whole project soaking wet in the smelly liquid of politics, and the rakeoff, as previously mentioned, pushes the real price back upward from “market prices” toward “political prices.”
Secondly, the enterprises attracted to, and most likely to garner contracts for, privatization schemes aren’t necessarily the most efficient market enterprises. Rather, they’re the enterprises which hire the best lobbyists and wield the most political influence. In this respect, “privatization,” rather than being a cure for government failures, is a vector for infecting the private sector with the same diseases.
Finally, there’s a flip side to the “public-private partnership.” While the state retains substantial authority over the projects, the contractors get tagged with substantial responsibility for the outcomes.
When a privatized project goes south — when it comes to light that inmates have been abused in “private” prisons, or prospectively when one of NASA’s “private” crew capsules loses atmosphere in orbit — our bureaucrats will point their fingers straight at the “private” contractors and hope we forget the piles of government standards those contractors were required to operate under.
The market entities, if there are any involved, take it in the shorts; more likely, these “market entities” are actually politically connected enterprises who’ll be back for another dip from the well after things blow over and fade into memory, but they at least get a public spanking to keep up appearances.
The government entities, on the other hand, move forward with their reputations unstained and their budgets untouched.
Privatization, as currently practiced, is a “heads the state wins, tails the state’s subjects lose” proposition. If a privatized project founders on scandal or capsizes on cost, it’s all the market’s fault and the state should get more directly involved. If a privatized project “succeeds,” the state takes the credit and throws more “privatization” bait into the water, bringing more of the “private sector” into its happy, spendthrift “public sector” family.
The alternative to privatization as currently practiced — let’s call it “sham privatization” — is real privatization: Taking the provision of traditionally “public” services away from government altogether. The nugget of truth at the core of sham privatization schemes is that yet, the market really is more cost-efficient than government. At everything.
Individualist anarchist great Lysander Spooner's classic critique of the U.S. Constitution: "No Treason No.6: The Constitution of No Authority" in the new and handy Pocket Subversion Edition. Also featuring Roderick T. Long's "Libertarian Anarchism: Responses to Ten Objections". 
We’ve been down this road many times with NASA before. They are liars. They hosed us down, over and over again, by pretending to accept private space transportation, then turning on us and killing off the private space projects. NASA is evil and anyone who works for it knows it.
NASA did this with External Tanks Corporation, lying and saying they would sell External Tanks. Congress authorised them to do it, and they lied and they didn’t.
Beal Aerospace spent $300 million of Andrew Beal’s money on private space transport to support, e.g., space station re-supply. NASA then switched the deal and screwed them over. Beal shut it down, very wisely.
NASA must be destroyed. Everyone who works at NASA must be fired. NASA must be eliminated from the budget. All of NASA’s assets must be sold at auction, all the land returned to the universities which donated it conditionally. NASA’s buildings must be emptied of assets and torn down for the scrap content, until no brick stands atop another.
I am at the point where I think salt should be sown in the ground where the Johnson Spaceflight Center stands so that nothing ever grows there again. A monument to the evil they have wrought.
I think that the only true privatization is the Left-Rothbardian approach:
A Left-Rothbardian Approach To “Privatization”
http://www.youtube.com/watch?v=lF-L48BApPc
I’ve been trying to use other terms besides “privatize.” Partly because “privatization” has become a corporate state restructuring scheme. Also, when you say something is “private” it suggests exclusivity, and I think the freed market will include public property. You can say that collective or cooperative ownership is still private ownership, but when you say “private park” or “private road” I think there is an assumption that “private” means you need special permission to use it.
Marcel Votlucka talks of “marketization” of resources. I’m generally using grammatically clumsy variations on “freed market”.
My main argument for this is similar to Rothbard’s “Ruritania” argument in chapter 9 of The Ethics of Liberty. Traditional “privatization” would essentially be no different than the “elimination of the state” by the king of Ruritania in Rothbard’s example.
“Let us say that Ruritania is ruled by a king who has grievously invaded the rights of persons and the legitimate property of individuals, and has regulated and finally seized their property. A libertarian movement develops in Ruritania, and comes to persuade the bulk of the populace that this criminal system should be replaced by a truly libertarian society, where the rights of each man to his person and his found and created property are fully respected. The king, seeing the revolt to be imminently successful, now employs a cunning stratagem. He proclaims his government to be dissolved, but just before doing so he arbitrarily parcels out the entire land area of his kingdom to the “ownership” of himself and his relatives. He then goes to the libertarian rebels and says: “all right, I have granted your wish, and have dissolved my rule; there is now no more violent intervention in private property. However, myself and my eleven relatives now each own one-twelfth of Ruritania, and if you disturb us in this ownership in any way, you shall be infringing upon the sanctity of the very fundamental principle that you profess: the inviolability of private property. Therefore, while we shall no longer be imposing ‘taxes,’ you must grant each of us the right to impose any ‘rents’ that we may wish upon our ‘tenants,’ or to regulate the lives of all the people who presume to live on ‘our’ property as we see fit. In this way, taxes shall be fully replaced by ‘private rents’!” ”
9. PROPERTY AND CRIMINALITY
http://mises.org/rothbard/ethics/nine.asp
Most privatisation is fundamentally different from reverse nationalisation, and not just in who ends up with the pickings. We can see this in cases like railways in Britain, where the railways have been through both. Where the original enterprises applied private savings and built up integrated structures, usually vertically integrated and combining operations, marketing and finance (including accounting), the new ones made horizontal splits and separated these functions, handing (mostly marketing oriented) sections over to insiders (crony capitalism behind corporate veils) while operations and other vertical levels that supplied and maintained infrastructure were left behind and even neglected. Only profit centres went out, with cost centres largely lost in the wash – a structure that wouldn’t need any later changes of the rules to socialise losses, and prevented any free market incentives working through the new entities to improve or maintain operations.
The Ruritania example is not what it seems. In particular, it doesn’t work out as “In this way, taxes shall be fully replaced by ‘private rents’!”. The thing is, rents unlike taxes are inherently limited by their own nature. They cannot be changed or extended arbitrarily, and neither can their base be, as they are tied to what is being rented out and that has to work within market constraints. For instance, tenants could leave and the landlords couldn’t do the sort of social engineering that would need new taxes on a different base. Furthermore, over time the holdings themselves would get redistributed by market processes, just as happened to lands taken by the Crown in England in the centuries following the Norman Conquest and the Dissolution of the Monasteries; the manoeuvre doesn’t leave a fully entrenched position, just a solid and fairly enduring advantage.
Partly because of the effects in both paragraphs above, to me the soundest transitions seem to be, allowing new entrants and transferring state or quasi-state enterprises to their managers as partners in a new firm, not for free but for cash and quasi-cash like bonds, with the proceeds going to some transitional fund or other (probably connected to superannuation or something broad based) to get the wealth and economic benefits back to the people without economic shocks. Over time the market would sort out what enterprises flourished, newly privatised enterprises would be set up as going concerns, and there wouldn’t be a huge free ride for the new owners at the transition.
A “SINGLE VOICE PROJECT” is the official name of the petition sponsored by: The National Public Service Council To Abolish Private Prisons (NPSCTAPP)
THIS PETITION SEEKS TO ABOLISH ALL PRIVATE PRISONS IN THE UNITED STATES, (or any place subject to its jurisdiction)
The National Public Service Council To Abolish Private Prisons (NPSCTAPP) is a grass roots organization driven by a single objective. We want the United States government to reclaim sole authority for state and federal prisons on US soil.
We want the United States Congress to immediately rescind all state and federal contracts that permit private prisons “for profit” to exist in the United States, or any place subject to its jurisdiction. We understand that the problems that currently plague our government, its criminal justice system and in particular, the state & federal bureau of prisons (and most correctional and rehabilitation facilities) are massive. However, it is our solemn belief that the solutions for prison reform will remain unattainable and virtually impossible as long as private prisons for profit are permitted to operate in America.
Prior to the past month, and the fiasco of Fannie Mae, Freddie Mac, AIG, Lehman Brothers, and now the “Big Three” American Automobile manufacturers, the NPSCTAPP has always felt compelled to highlight the “moral Bottom line” when it comes to corrections and privatization. Although, we remain confounded by the reality that our government has allowed our justice system to be operated by private interests. The NPSCTAPP philosophy has always been “justice” should not be for sale at any price. It is our belief that the inherent and most fundamental responsibility of the criminal justice system should not be shirked, or “jobbed-out.” This is not the same as privatizing the post office or some trash pick up service in the community. There has to be a loss of meaning and purpose when an inmate looks at a guard’s uniform and instead of seeing an emblem that reads State Department of Corrections or Federal Bureau of Prisons, he sees one that says: “Atlas Prison Corporation.”
Let’s assume that the real danger of privatization is not some innate inhumanity on the part of its practitioners but rather the added financial incentives that reward inhumanity. The same logic that motivates companies to operate prisons more efficiently also encourages them to cut corners at the expense of workers, prisoners and the public. Every penny they do not spend on food, medical care or training for guards is a dime they can pocket. What happens when the pennies pocketed are not enough for the shareholders? Who will bailout the private prison industry when they hold the government and the American people hostage with the threat of financial failure…“bankruptcy?” What was unimaginable a month ago merits serious consideration today. State and Federal prison programs originate from government design, and therefore, need to be maintained by the government. It’s time to restore the principles and the vacated promise of our judicial system.
John F. Kennedy said, “The time to repair the roof is while the sun is shinning”. Well the sun may not be shinning but, it’s not a bad time to begin repair on a dangerous roof that is certain to fall…. because, “Incarcerating people for profit is, in a word WRONG”
There is an urgent need for the good people of this country to emerge from the shadows of cynicism, indifference, apathy and those other dark places that we migrate to when we are overwhelmed by frustration and the loss of hope.
It is our hope that you will support the NPSCTAPP with a show of solidarity by signing our petition. We intend to assemble a collection of one million signatures, which will subsequently be attached to a proposition for consideration. This proposition will be presented to both, the Speaker Of The House Of Representatives (Nancy Pelosi) and the United States Congress.
Please Help Us. We Need Your Support. Help Us Spread The Word About This Monumental And Courageous Challenge To Create Positive Change. Place The Link To The Petition On Your Website! Pass It On!
The SINGLE VOICE PETITION and the effort to abolish private “for profit” prisons is the sole intent of NPSCTAPP. Our project does not contain any additional agendas. We have no solutions or suggestions regarding prison reform. However, we are unyielding in our belief that the answers to the many problems which currently plague this nation’s criminal justice system and its penal system in particular, cannot and will not be found within or assisted by the private “for profit” prison business. The private “for profit” prison business has a stranglehold on our criminal justice system. Its vice-like grip continues to choke the possibility of justice, fairness, and responsibility from both state and federal systems.
These new slave plantations are not the answer!
For more information please visit: http://www.npsctapp.blogspot.com or email: williamthomas@exconciliation.com
To sign the petition please visit: http://www.petitiononline.com/gufree2/petition.html
THANK YOU FOR YOUR SUPPORT!
William Thomas
National Community Outreach Facilitator
The National Public Service Council To Abolish Private Prisons
P.O. Box 156423
San Francisco, California 94115
So much to talk about.
Privatization that comes through government contracting is not privatization at all, as you have said quite correctly.
True privatization takes the decisionmaking on who is providing the service out of government hands and gives it to either the taxpayer or the consumer. Schools are a prime example of this, although the same approach can be taken with mental health care (with taxpayers deciding which entity gets their dollars – a professional hospital, a public hospital or a sectarian hospital).
Private prisons are the most horrible of institutions, and will remain that way until non-profits compete for these contracts as the prime contractor, forcing the for profit company into a subsidiary role with no decision-makng authority. Most violent crime and all non-violent drug violations are better prosecuted as medical issues. It is rare for a sober individual to rob houses or roll drunks, hold up a 7-11, beat the wife or kill a cop. The underlying illness should be treated rather than the crime punished – and treatment should start before someone is harmed and it should not be optional or easy to leave.
There are libertarians who hate that concept, however, there is no liberty in the heart of one who is compelled to drink or use drugs, or who is mentally ill and out of control due to non-compliance on meds.
Privatization as a replacement for regulation is best done through voluntary association. An industry dominated by employee-owned firms would be the best example of this, since most would not only be safe but have a desire to remain that way (and have other businesses meet the same standard). Products will be equally save, since employee owners who sell dangerous products lose their retirements as people go elsewhere.
One that will make some howl is the privatization of redistribution through the payment of a living wage. While employee owned firms will due this because they take a long term view, in the short term it can be accomplished by tax policy and the payment of credits to workes against the firm’s excise or income taxes before the government sees one red cent.
Michael Bindner wrote “One that will make some howl is the privatization of redistribution through the payment of a living wage. While employee owned firms will due this because they take a long term view, in the short term it can be accomplished by tax policy and the payment of credits to workes against the firm’s excise or income taxes before the government sees one red cent.”
A couple of people who have worked in this area are Professor Kim Swales of the University of Strathclyde (with his colleagues – see this page, in particular the summary of The Employment Effect of Subsidies (continued on later pages), “Report to the Directorate General Employment, Industrial Relations and Social Affairs, Commission of the European Communities, SOC 94 100018 05A01″), and Nobel winner Professor Edmund S. Phelps, McVickar Professor of Political Economy at Columbia University (see “STATEMENT Of Edmund S. Pehlps [sic]… On Payroll Taxes and Wage Subsidies Before the National Commission on Economic Growth and Tax Reform September 29, 1995″ and also his interview with Challenge of July-August 1997, on his related book “Rewarding Work: How to Restore Participation and Self-Support to Free Enterprise” (Cambridge: Harvard University Press, 1997)). I have looked into the area separately using game theory, e.g. at Today’s unemployment and some of the cracks rational
economics falls through, article printed in News Weekly of 18.4.98 and some of the other items on that page, and I recently drew heavily on all this in writing my second submission to the (Australian) Henry Tax Review, where I describe it as “a Pigovian virtual wage subsidy integrated with the tax system, to improve both employment and GDP without the problems usual with wage subsidies, Negative Income Tax, etc.”. I contemplate this as a first step towards Distributist style personal independence, with monetising the entitlements as a second step and a Basic Income system carried by an arms-length fund as a third step and distributing the resources behind that fund as a final step.
On Byran Caplan’s “Libertarian Purity Test,” the author includes a note:
“A note on meaning: The word privatized as used throughout the survey means that a given government service is henceforth supplied by the free market and paid for by consumers. It is distinguished from sub-contracting in which the government uses tax money to hire a private firm to provide a government service.”
Personally, I like these terms. Hence, whenever I advocate privatisation, I make it clear that I advocate what I call “true privatisation,” not the statist variant (i.e. subcontracting).
It’s tragic that the term has been twisted by the state so dramatically. Thanks to this twisting, politicians are able to advocate the socialisation of the stock market while calling this “privatisation of social security,” thereby destroying through association the credibility of those who truly do want to fully and truly privatise retirement savings rather than have Uncle Sam play the stock game.
Kregus1 posts a link to a video by brainpolice2. I love brainpolice2’s videos and analysis. That video is no exception.
I do wish you had included more of Rothbard’s chapter, however: