How Privatization Gets (and Deserves) a Bad Name

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Jason Kuznicki

Jason Kuznicki is a research fellow at the Cato Institute and contributor of Cato Unbound. He's on twitter as JasonKuznicki. His interests include political theory and history.

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  1. Avatar Mark Thompson
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    says:

    From your lips to the FSM’s ears.Report

  2. Avatar MFarmer
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    says:

    “It’s a pity that their so-called “free market” descendants have forgotten this.”

    We haven’t — the problem is that there are only a few of us in existence. I mean free market free market, in conjuction with a limited government prevented from giving favors. You have to include the protections against coercion or it’s just like you say — awful, awful, awful. They go hand in hand or the believer is not serious.Report

  3. Avatar Sam M
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    says:

    Yeah. Good old Pittsburgh. A while back they legalized gambling in Pennsylvania. Sort of. What they actually did was invent a few licenses, thereby creating a fake market in which a few people will control the whole shebang. I thought that was bad enough, but at leat hoped they would uction them off to the highest bidder.

    Nope. I was living in Pittsburgh at the time. And Pittsburgh was dead broke. But instead of offering cash, the developers came in and did things like offer to build a hockey stadium to get the license. I mean… straight up bribing the city. And still, everyone in the city kept talking about it like it was a free hockey arena.

    But it wasn’t a bribe, see. It was “competing economic development plans.” The guy who won never built the casino because he almost immediately went broke.

    Politics. Awesome.Report

  4. Avatar Casey Head
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    says:

    I would not characterize the the inefficiency of a government awarded monopoly as a failure of privatization, but of bureaucracy.Report

    • Avatar Jason Kuznicki in reply to Casey Head
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      says:

      @Casey Head,

      I agree. Yet our language here is particularly confusing, because proponents of these schemes like to talk about them as if they were privatization, and free-market-ish, and therefore good. When the schemes look bad or fail, the failure is ascribed to the market.Report

  5. Avatar Trumwill
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    says:

    While I agree that there are a lot of pitfalls to be wary of and that “free market” is not the appropriate term for privatization, I would add that there are some advantages to prioritization to be considered, mostly as it comes to labor. Depending on how it’s done. It’s easier to replace contractor that is not doing their job than it is to replace an office full of government employees. It’s easier to eliminate jobs during lean-times when they’re n0t the government’s jobs and it’s easier to lower employee pay than to slash government salaries.

    I’ve seen the same dynamics at work when working for a contractor at a major software company. A lot of the same advantages and disadvantages apply.Report

    • Avatar Bass in reply to Trumwill
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      says:

      @Trumwill,

      It’s easier to replace contractor that is not doing their job than it is to replace an office full of government employees. It’s easier to eliminate jobs during lean-times when they’re n0t the government’s jobs and it’s easier to lower employee pay than to slash government salaries.

      That’s true, and all other things being equal, I usually support contracting the work as opposed to the government actually running and operating the bureaucracy for most services.

      The snag occurs when the contractors realize they can influence the process of giving out contracts, and so they start using political pull to get contracts headed their way, even when they’re not the best choice for the job.Report

      • Avatar dexter45 in reply to Bass
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        says:

        @Bass, Recently,the state of Louisiana awarded a contract for road widening that was for 66 million to a private company. The company’s bid was not the lowest or the one that promised the quickest completion date. I don’t know any other details, but it did aggrevate me. I believe the best investment in America is a campaign contribution.Report

      • Avatar Trumwill in reply to Bass
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        says:

        @Bass, absolutely. I didn’t mean to suggest that privatization was not often risky or without downsides. Ideally, contracts would go to those best able to do the job and not those that contributed the most. Of course, ideally the government could be as flexible with staffing as the private sector and so contracting work out could be more easily avoided. Of course, even then there are special projects like construction and whatnot where it might make sense to have people that do that sort of thing full-time rather than having a staff on stand-by. But the attraction to contracts for 24/7/365 could be avoided entirely.Report

  6. Avatar Christopher Carr
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    says:

    People who genuinely believe in “privatization” are like those Pacific Islanders that started all those cargo cults.Report

  7. Avatar Plinko
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    says:

    I think MattY’s recent post on privitization(http://yglesias.thinkprogress.org/2010/10/privatizing/) has an important nugget – in that “privatizing” was originally supposed to be about selling off government-owned businesses like banks or airlines so they were run as private firms. The type of things we genrally talk about in the US as ‘privatizing’ is not privatization, it’s the sale of rent privileges.
    At times contracting is smart, but contracting out core government functions (like the administration of public infrastructure) is nothing more than looting of the public trust.Report

  8. Avatar Aaron
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    says:

    Isn’t the term “privatization” in the context of selling off a public asset to a private company, or selling the long-term rights to parking revenues, really an issue of branding? The mantra, “Government bad, privatization good,” is continually pushed on us from any number of sources, and even though that’s far from a universal truth there’s little push-back.

    Imagine that you’re the mayor of a city that has serious budget issues, or are the governor of a state in a similar situation, and you want to find a quick source of cash – preferably a lot of cash. You realize, “If we can find an investor willing to pay us, up front, for the next 75 years of parking meter revenues, we can apply all of that money to this year’s budget and not have to worry again (until next year, when maybe we can sell off something else).”

    If you’re honest about what you’re doing – borrowing from taxpayer’s children, grandchildren and great-grandchildren, eliminating future revenue sources, making it more difficult for future administrations to balance the budget, and creating an incentive for the buyer to maximize returns (e.g., by eliminating free parking on holidays, or having agents check for parking violations on a much more frequent basis), it might be a hard sell. So why not call it “privatization” and hope nobody asks the tough questions until the deal is signed?Report

  9. Avatar Lyle
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    says:

    Every so often we try the privatization route and it fails. The first turnpikes in the 19th century were private, and failed. The railroads were a mixture depending upon the state where they ran and the time if they got aid beyond the ability to get any right of way they wished.
    Actually if we privatize to chinese, we can later in a spat nationalize them. Recall that during the 1980 period when Japan was going to take over the world they bought Rockefeller Center. They then lost their shirts on the deal http://money.cnn.com/magazines/fortune/fortune_archive/1995/07/10/204272/index.htm The Rockefellers evidently had some of their grandfathers moxie and took them to the cleaners.Report

  10. Avatar JustLib
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    says:

    YEAH! You nailed it. Do I hear some echoes of Henry George here?

    There’s nothing free about a monopoly, so privatizing natural monopolies is the opposite of free enterprise.

    A road is the quintessential natural monopoly. By its nature, it is a commons. It can’t be owned by any particular party without threatening the freedom of other parties.

    Parking spots on the public ways would seem to go into that category. Corruption and waste will occur in public administration, but at least the public has levers of input. (We don’t use them, and our servants have gotten used to our apathy.) Not so when the managers can hide behind multiple layers: the supposed sanctity of a contract, the corporate bureaucracy AND the govt. bureaucracy.

    I can see the appeal in privatizing spots in congested areas. But
    practically speaking, how do you enforce that? Put furniture out to mark your spot like folks do in Chicago in the winter?

    More significanly, if you permanently sell off spots/meters on public streets, each one would remain a mini-monopoly on publicly built and maintained property. This still favors a privileged class. Unearned increments to the value of a parking space (say, as the trendiness of a neighborhood increases) would constitute monopoly rents. Would this set us up for a speculative bubble in parking spaces?

    More in keeping with the public nature of the street, I think, is a residential permit system (where residents can give their guests temporary permits.) That way, individuals can have something closer to exclusivity, but they have to pay the rest of the public who are being excluded from that piece of public property. *

    * Yeah I know: none of this does any good if we don’t also control how our servants are spending (or losing) our money.

    My first blog post over here is about privilege and how this is the common element in what the better angels of both Left and Right object to. Hit us up and bookmark us, more to come. (Cheesy generic template to be fixed soon.)Report

    • Avatar Jason Kuznicki in reply to JustLib
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      says:

      You’re correct to hear echoes of Henry George. I’ve often found it both bizarre and appalling that the Marxist and Maoist theories of land distribution have gotten so many trials in the real world, and all of them disasters, while the Georgist system has had so little chance to prove itself.

      As to your blog, I’d love to read it, but it’s currently marked private, and I don’t have a password to get through.Report

  11. Avatar JustLib
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    says:

    BTW: the Chicago meter deal actually is a lease, but it’s a 75-year lease, so it might as well be a sale.

    Contracting out particular operations isn’t the same as selling off infrastructure.

    Lyle, good point on railroads, the first public rights-of-way to be given away (literally) to private concerns, and also, not coincidentally, the sources of the first great fortunes.Report

  12. Avatar JustLib
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    says:

    Oh yeah, Just Liberty is now public. I think. (I’m new to WordPress…)

    Posted a half-formed thought above with respect to privatizing operations. But perhaps that’s where I should leave it for now, since I’m not sure I have a whole thought on the issue.

    Henry George is teh man.Report

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