The Futility of State-Directed “Market Reform”: Privatization

If there’s one thing the libertarian establishment — that is, mainstream libertarian organizations whose main activity is lobbying the state for “free market reform” — loves, it’s so-called “privatization.” An article by Paul Buchheit at (“Eight Ways Privatization has Failed America,” Aug. 5) treats the failure of privatization as a reflection on the limits of “the free market system.” But the examples he lists — water and electric utilities, prisons, “free market healthcare,” etc. — make it pretty clear it’s only “free market” insofar as it involves corporate profit and the cash nexus.

To understand why, we need to see the state for what it is. Those of us on the free market Left view the state, in its essence, as a coercive instrument of ruling class power. The economic means to wealth — production, peaceful exchange, voluntary cooperation, sharing and gifting — are positive-sum. Everyone benefits. The state, on the other hand, is the political means to wealth, by which a coalition of ruling classes uses force to extract rents from everyone else.

The earliest states were instruments by which kings, nobles and priests extracted tribute from the peasantry. In medieval times, the state was a tool mainly of the landed interests. In the early days of the capitalist era, it served the interests of  great landlords engaged in capitalist agriculture,  mercantile interests, and the alliance between mining, arms manufacture and the absolute monarchy. As the capitalist era developed, industrial capitalists joined the class alliance in control of the state, followed later by finance capitalists and the owners of “intellectual property.”

Regardless of the ideological trappings it adopts, the primary beneficiaries of the state’s policies will be the economic classes that control it. This was true in the Progressive Era and New Deal: Although the policies of those eras were packaged as populist or pro-worker, the main political forces behind them were large corporate interests. And it’s just as true today of the kinds of “free market reform” we see pushed by the Heritage Foundation, the American Enterprise Institute and the American Legislative Exchange Council.

That’s especially true of so-called “privatization.” Here’s how that typically works: You start with an infrastructure built at taxpayer expense. The state “privatizes” it by selling it off to a nominally private corporation, on terms basically set by the corporation behind the scenes. Those terms usually include an expenditure of taxpayer money (often in excess of proceeds from the sale) to upgrade the infrastructure and make it saleable; some sort of guarantee of profits to, or restriction on competition against, the privatized entity; and a large-scale asset-stripping and hollowing out after the sale takes place.

I say “so-called” privatization because a “private” entity which exists in a web of state protections and whose profits are guaranteed by the state is really just a branch of the state. The only difference between a “public service” performed directly by the state’s own employees, and one performed by a “private” corporation paid with taxpayer money, is that the cost of the latter includes a parasitic layer of shareholders and corporate managers.

For example, the Corrections Corporation of America buys public prisons — in return for which they only ask the state to guarantee they will be kept 90 percent full for twenty years. “Privatizing” water utilities means the government — when all costs are accounted for — practically pays a corporation to take the water system off its hands, the new corporate owner strips and sells off everything that’s not nailed down, and then the customers get gouged.

This is what the right-wing “free market” think tanks mean by “market reform.” But it’s delusional to expect anything else, no matter how much they throw around the term “free market.” It’s just as foolish to expect genuine “free market reform” from right-wing capitalists as it is to expect genuine pro-worker policies from left-wing capitalists. Trying to promote free markets or help the exploited classes through the state is like doing origami with a hammer.

In most cases the only legitimate way to privatize government property is to look behind all the mystical nonsense about government, and treat it as the property of those who are actually using it to provide services or those who consume those services. That means government-owned factories and farms become worker cooperatives, and government-owned utilities become consumer co-ops owned by the rate-payers.

The last major head of state to propose privatization on that model was Mikhail Gorbachev, who was deposed by a conveniently timed coup that eventually brought Boris Yeltsin to power — followed by the selling-off of the state economy, under Jeffrey Sachs’ supervision, to the kleptocracy. In other words, don’t hold your breath waiting for genuine market reform from the state.

Translations for this article:

Anarchy and Democracy
Fighting Fascism
Markets Not Capitalism
The Anatomy of Escape
Organization Theory