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Evening Focus: Privatization 201

March 11, 2011

Our Evening Focus

Evening Focus: Privatization 201

Privatization is:
a) efficient corporations replacing bloated, wasteful government programs
b) greedy corporations ripping off the public.


The right answer: c) both, neither, and it depends

The dominant conversation about privatization is an ideological battleground with little middle ground. A power grab by greedy corporatists and corrupt GOP politicians? Resisted by fat cat union bosses and lazy overpaid public workers, defended by union thugs and socialist libruls?

Sadly, this exactly matches the rhetoric of the real world privatization campaigns being waged in Wisconsin, Ohio, Indiana and other states. In today’s Morning Feature, commenters bemoaned the sticky meme of fat, grubby, lazy public workers contrasted with lean, clean corporate winners.

Privatization is an ideological battle, but it is also more than that. Progressives can make use of a finer, more detailed understanding of privatization to push back more successfully.

The Faces of Privatization:

    1. Ideological Privatization.

An essential pillar in the conservative small government philosophy. This sees government as always the least efficient and most wasteful provider, and any measures to transfer government functions to private providers as virtuous.

The privatization pillar—converting publicly operated entities to private ownership—is lumped together with other transfers of wealth from state coffers to corporate profits that are not strictly privatization but are similar: such as outsourcing, contracting for services and sale of public assets.

Combined with two other pillars of that philosophy – deregulation and tax reduction – the goal is to shrink government to make markets more “free” and give more “liberty” to corporations.

Progressives’ Response:

Well, obviously it’s that people matter more than profits; each person matters equally; the earth is our home, not our trash can; and we need good government to accomplish these goals.

Beyond that, we need to challenge the assumptions behind every privatization proposal. Ideological privatization is not virtuous, rarely justifiable, and often not even legitimately privatization. It’s arguably our BPI mission to expose the implications, debunk the claims, and unpack the basis of their arguments to reframe the discussion towards American values.

There’s a false cohesion of the ideas behind ideological privatization that we can disrupt with story and truth. People might believe that government is wasteful, but they won’t agree that schools, neighborhoods, communities, and states should suffer or lose services they care about.

    2. Privatization as Budget Rescue.

We’ve discussed elsewhere at BPI that state and local governments have fewer options and recourses when faced with budget deficits. If voters reject bond issues, and political leaders refuse to raise revenue with tax increases, spending must be cut to comply with mandates for balanced budgets.

Local budget dilemmas are a significant driver of privatization that is non-partisan per se but still misguided and short-sighted.

As discussed in Morning Feature, corporations are only too eager to swoop in and bid for low-risk contracts with guaranteed profits. But from the perspective of the township, city, county or even state budget managers, they see no choice. They can recognize immediate cash benefits and remove an ongoing expense item from annual budgets.

Progressives’ Response:

Our case is stronger when we can discern between ideological privatization and these real budget dilemmas. And to be honest, if the problem has gotten that far, it’s often too late.

Progressives need to be pro-active on bond issues and taxation issues to keep these budget crunches from happening in the first place. Elect good representatives at every level of government: from dog catcher to school board to aldermen to mayors and on up.

Best strategy to counter budget rescue privatization proposals is to advocate for expanding the options. Publicize the long-term consequences of short-term fixes, help shape the debate to consider community values. Identify trade-offs and alternative solutions.

    3. Privatization Partnerships and Reforms

Believe it or not, there is such a thing as good privatization. In our Evening Focus debates, corporatist hat-wearing Roby tried to describe those ideal situations where good government can choose privatization when there is genuine social benefit to be realized.

High speed rail, pure scientific research, and alternative energy are three areas appropriate for these kinds of partnerships between government-run seeding programs and private sector execution.

At a more local level, Newark mayor Cory Booker has been aggressively developing private-public partnership programs to bring in jobs and improve services his city can’t offer with its limited revenue. Two examples: an insect extermination business that employs Newark ex-cons, and an incubator for call-center businesses to relocate to Newark. Booker describes these as multi-faceted wins for Newark: more jobs, more economic activity and tax revenue, expanded city services, and positive opportunities for city residents who would otherwise have higher rates of drug abuse, crime, and recidivism, imposing more costs on Newark.

Progressives’ Response:

By championing this kind of pro-social privatization, we defang the ideological stereotypes and criticism. When Cory Booker talks about his Newark programs to New York City business students, they come away impressed and enthusiastic. One student this year said he never realized Democrats could be so smart about working with business.

    4. Rape and Pillage Privatization

The most dangerous of all. Under cover of ideological privatization rationale, large corporations around the world convince governments to hand over control and rights to public natural resources. Water is a $400 billion dollar global industry; the third largest behind electricity and oil. Bolivia gave away water franchises to a French subsidiary of Bechtel in 1999, but re-nationalized water services two years later after public protests. I would also lump ceding control of essential national infrastructure into the rape and pillage category.

It’s a powerful movement because there’s a lot of money to be made. The social costs are heavily outweighed by the substantial potential private profits, making poor and weak governments especially susceptible to corporate “influence”. Also at risk: states with conservative governors eager to raise their national profile.

Progressives’ Response:

– Expose, (make documentary movies!), campaign and publicize. Take advantage of social media and take control of public discourse. Boycotts and negative publicity are toxic for corporations with valuable consumer reputations to protect.

– Empower and enable responsible government entities to regulate, legislate, and enforce environmental and consumer protection laws.

– Strengthen the systems’ natural checks and balances. In Singapore, government regulators and auditors are paid higher than private-sector salaries to remove temptations for bribery and conflicts of interest. Once upon a time, in the days of unicorns, we had a free and responsible fourth estate: journalists. Reward the good ones, give less attention to the lazy, weak, and corrupt ones.

Progressives’ Takeaways:

1. Privatization has a place, as collaborative pro-social partnerships between governments and businesses. When reform and efficiency gains are provable and sustainable, when synergy leads to expanding social value, corporations are not the enemy.

2. Privatization of public services is often a regressive policy. That means that costs formerly covered by progressive taxation fall directly on users and consumers, where those with the least ability to pay bear costs disproportionately. Exacerbated when abusive and exclusive contracts mean monopolistic price-setting.

3. When local government budgets are crunched, distinguish between short-term budget fixes and misguided mistakes that cannot be easily undone. When the issues are truly economic and not partisan, engage positively to find solutions.

4. Never underestimate the tenacity and determination of those pursuing privatization for ideological and profiteering reasons. The money interests and political power agendas behind it are formidable and relentless. The rights and welfare of the middle class are at serious risk.

In tomorrow’s Morning Feature: how to talk about privatization to Fred.

  • Oh! Lemme run to the kitchen for that huge bowl of macadamias.

    Okay, back. I hope you’ll have some, Roby.

    • Roby NJ

      I’m so glad you’re my buddy now, squirrel. Just think if states like Wisconsin were run by squirrels instead of Republicans. Macadamia rights for workers!

      • I’m a buddy of anyone who put up with all you put up with during that debate. I told the other panelists not to hurl those sponge golf balls at people they disagreed with. I can’t understand why they did it anyway. Should I have left out the part about “even if it can’t possibly harm him?”

        I would support macadamia rights for workers, but we would need to keep that quiet. Macadamias are grown in Kenya Hawaii, after all….

        • Roby NJ

          Hmmm, I knew there was a reason I liked you. Do you have your macadamia nuts’ long-form provenance certificates?

          If I’d looked in a mirror, I’d have seen that someone taped a big target on the top of my hat. No wait, it was a surveyor’s mark. But that’s probably why I got all the golf balls.

  • Lake Toba

    Excellent, Roby. That helps crystallize the arguments for and against privatization, and the dangers we confront when challenged by big business that wants to play in the traditional government services arena.

    We need to remind Fred that there’s a lot of good work that government does, and that it’s capable of delivering services at a bargain.

    • Roby NJ

      Thanks, LT. I really enjoyed your Furthermore today. (All: check it out if you haven’t already).

      Cory Booker is a great example of governing at its best. He has a bright future. Interesting anecdote. He spoke this year to our entire freshman class, and someone asked him, if he might have higher political aspirations, if he’d ever smoked marijuana. First he quoted Lincoln, that “folks who have no vices have very few virtues.” Then he admitted that in his life, he has never smoked pot, never touched a drop of alcohol, and never even smoked a cigarette!

      • Lake Toba

        Sounds like a promising politician. Bizarre as it may sound, I do believe that a significant number of elected officials actually do care about the work they do, and believe in the legitimacy of our republican form of government.

        It’s refreshing to hear of another example of this…

  • DBunn

    Hey Roby…

    Very nice article. Sorry I don’t feel in shape to reply in any depth. It’s not that I have nothing to say, more like too much.

    Anyhow, thanks for joining this group. I enjoy your contributions.

    • Roby NJ

      DBunn thanks for all that!

  • winterbanyan

    Thanks for this recap, Roby. You certainly lay out the pros and cons very clearly. I’ve been thinking a lot about privatization as a result of this weeks focus on it, trying to find my line in the sand for what should be privatized and what should not.

    Procurement, for example, is a place I think privatization not only helps the government and contractor, but also the people. We don’t want government involved in building its own businesses.

    But there are other functions that cannot properly be privatized without assuming tremendous risks. The simple chants to privatize or not to privatize don’t begin to address the complexity of issues.

    • Roby NJ

      Winterbanyan thanks. I think I went into education because of my own proclivity to want to figure out problems by breaking them down, sorting out the details. As you say, risk assessment is not always considered as much as it should be.

  • JanF

    This was an excellent recap and an Evening Focus I suspect we will be linking to quite frequently.

    You synthesized both the strategy of the right-wing and the progressive responses needed to counter them.

    Thank you for this and for putting up with the harassment during the debates. I am glad you and the squirrel made up because I am hoping to see future debates as BPI Campus discusses other topics important to progressives and to our country’s future.

    • Roby NJ

      Thanks JanF! Squirrel is too cute to stay mad at.

About Roby NJ

Professor of Management Communications at New York University Stern School of Business.

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