Dave Johnson - Privatization Nightmare: 5 Public Services That Should Never Be Handed Over to Greedy Corporations

By Dave Johnson, AlterNet

Posted on November 17, 2011, Printed on November 18, 2011
http://www.alternet.org/story/153093/privatization_nightmare%3A_5_public_services_that_should_never_be_handed_over_to_greedy_corporations

Who gains – and who loses – when public assets and jobs are turned over to the private sector? 

The corporate right endlessly promotes “privatization” of public assets and public jobs as a cash-raising or cost-saving measure. Privatization is when the public turns over assets like airports, roads or buildings, or contracts out a public function like trash collection to a private company.  Many cities contract out their trash collection.  To raise cash Arizona even sold its state capital building and leased it back. 

The justification for privatization is the old argument that private companies do everything better and more “efficiently” than government, and will find ways to cut costs.  Over and over we hear that companies do everything for less cost than government. But it never seems to sink in that private companies don’t do things unless the people at the top can make a bundle of cash; if the CEO isn’t making millions, that CEO will move the company on to something else.  When government does something they don’t have to pay millions to someone at the top.  

So how do private companies save money?   What costs do companies cut that government doesn’t?  When you hear about “cost-cutting” here is something to consider: what if by “costs” the privatizers are talking about … us? 

The Human Cost

A recent NY Times piece brought the human cost of privatization to people’s attention.  In the article, A Hidden Toll as States Shift to Contract Workers, the Times’ Motoko Rich reports,

With state budgets under pressure, Michigan says it can no longer afford the relatively high wages of the public workers, which range from $15 to $20 an hour, along with health and retirement benefits. According to Salary.com, certified nursing assistants in private long-term care facilities in the area earn a median salary of just over $25,000 a year, or about $12.25 a hour. 

Summary: when a public function is privatized the employees get paid less and lose benefits, but other state agencies pick up the costs that occur when people get paid less.  Private managers and executives get a big chunk of the “savings” and then there are the costs to the larger economy from ever more people making less and less.  From the Times article, 

Economists and other academics who study outsourcing are divided about whether it usually saves a government money. Recent data from Arizona shows that privately operated prisons often cost more to operate than state-run facilities. A study by the Project on Government Oversight, a nonprofit Washington group, found that in 33 of 35 occupations, using contractors cost the federal government billions of dollars more than using government employees. 

Laura Clawson at Daily Kos added to the NY Times story, in, Low-wage contract workers in Michigan veterans home come with hidden costs,

What do you want to bet that guy gets health care, and retirement benefits, and earns more than $10 an hour? And that he's probably not the only person at J2S of whom those things are true. So while the hourly wage a nursing assistant working for J2S gets is $10, the state is paying J2S more. How much more, the New York Times does not report. But Eclectablog

 points out that the state pays J2S Healthcare Group $15 an hour for those $10 an hour nursing assistants. 

When a public job is contracted out, usually public employees are replaced by people who are paid much, much less and receive fewer, if any benefits.  Corporate propagandists complain that public employees are overpaid, receive “lavish” benefits, and are difficult to fire.  But the question we all should ask is: is it in the public interest for Americans to be paid less or more, and to receive or not receive benefits?  If we believe it is better to be paid more and receive benefits then We, the People should do that. 

Corruption Incentive

Along with people getting their pay cut, privatization creates an incentive for corruption on the part of public officials.  When a company (or, really, the people at the top of a company) can make a bundle form privatization, then they have a really good reason to bring various forms of … uh …  influence to bear on the public officials that make the decisions about whether or not to privatize. 

Five Privatization Nightmares

Here are five nightmares resulting from privatization: 

1.     Privatized Prisons

Think through the implications of a privatized prison system: if people go to prison it means more profit for the big for-profit prison corporations.  This puts corporations, with all of their influence over the government, in the position of wanting more of us sentenced to long terms in jail so they can make more money!  Even worse, there is an added corporate benefit: cheap prison labor.   

Of course, the result you would expect from these incentives is exactly what has been happening. 

For example, you may have heard about the "Kids for Cash" scandal in which Pennsylvania judges pleaded guilty to sentencing kids to privatized detention centers in exchange for payoffs from the profit-making companies that ran the centers.  First the judges arranged for public detention centers to be defunded.  Then they started sentencing a disproportionate number of kids to private detention centers in exchange for bribes.   

The profit incentive to put more and more of us in prison is not just an isolated local problem.  This year The Nation looked into prison privatization, in The Hidden History of ALEC and Prison Labor. They found that the notorious, Koch-funded American Legislative Exchange Council (ALEC), in an effort that is sponsored by the big for-profit prison corporations and companies that benefit from the cheap labor this provides, is helping to pass laws to put more and more of us in jail.  According to The Nation, 

… prison labor for the private sector was legally barred for years, to avoid unfair competition with private companies. But this has changed thanks to the American Legislative Exchange Council (ALEC) .... [and their] instrumental role in the explosion of the US prison population in the past few decades. ALEC helped pioneer some of the toughest sentencing laws on the books today, like mandatory minimums for non-violent drug offenders, “three strikes” laws, and “truth in sentencing” laws.

… ALEC has also worked to pass state laws to create private for-profit prisons, a boon to two of its major corporate sponsors: Corrections Corporation of America and Geo Group (formerly Wackenhut Corrections), the largest private prison firms in the country. An In These Times investigation last summer revealed that ALEC arranged secret meetings between Arizona’s state legislators and CCA to draft what became SB 1070, Arizona’s notorious immigration law, to keep CCA prisons flush with immigrant detainees. ALEC has proven expertly capable of devising endless ways to help private corporations benefit from the country’s massive prison population. 

[. . .] Much of ALEC’s proposed labor legislation, implemented state by state is allowing replacement of public workers with prisoners. 

2.     Parking Meters?

Parking meters don’t sound like a big issue, but look what happened to Chicago.  In a 2008 deal with Morgan Stanley, Chicago privatized its parking meters.  In return for $1.15 billion Chicago gave up $11.6 billion of future revenue.  Worse, the city gave up public control of its roads: If any road with parking meters is closed by the city for repairs, street fairs, parades, etc., the city has to come up with cash to cover loss of revenue. The lease eventually ended up under the control of Abu-Dhabi.

Matt Tiabbi wrote in Rolling Stone about the effects of this deal,

To start with something simple, it changed some basic traditions of local Chicago politics. Aldermen who used to have the power to close streets for fairs and festivals or change meter schedules now cannot — or if they do, they have to compensate Chicago Parking Meters LLC for its loss of revenue.

So, for example, when the new ownership told Alderman Scott Waguespack that it wanted to change the meter schedule from 9 a.m. to 6 p.m. Monday through Saturday to 8 a.m. to 9 p.m. seven days a week, the alderman balked and said he'd rather keep the old schedule, at least for 270 of his meters. Chicago Parking Meters then informed him that if he wanted to do that, he would have to pay the company $608,000 over three years. 
 
… Written into the original deal were drastic price increases. In Hairston's and Colon's neighborhoods, meter rates went from 25¢ an hour to $1.00 an hour the first year, and to $1.20 an hour the year after that.

… "There are so many problems — I've had so many problems with them," says Hairston. "It tells you you've got eight minutes left, you get back in seven, and it charges you for the extra hour. Or you don't get a receipt. It's crazy."

But to me, the absolute best detail in this whole deal is the end of holidays. No more free parking on Sunday. No more free parking on Christmas or Easter.

3.     Wisconsin

Since the election of Governor Scott Walker, Wisconsin is a statewide privatization nightmare.  In Privatization At The Heart Of Divisive Battles In Wisconsin, Huffington Post’s Amanda Terkel reports on the state’s privatization battles and the Governor’s efforts to privatize many public functions:

During his tenure as county executive, Walker proposed privatizing park maintenance, the county zoo, psychiatric staff and other sectors.   Most of the time, his ideas never went anywhere, but in March 2010, he was finally able to privatize courthouse security guards. The plan ended up backfiring and costing the county extra money whena judge ordered to reinstate the guards 

and give them back pay, meaning the government had to pay both the public workers and private guards for a period of time. 

… The project that he embarked on as a freshman governor in 2011 is little more than an extension of the philosophy he displayed as county executive: Walker is trying to undo the social contract and replace it with a private one. 

… A state audit released this month found Wisconsin's privatization occurred with insufficient oversight from the legislative branch and may have violated federal rules. State officials paid two contractors $27.6 million over two years to handle enrollment in food assistance and health care programs for low-income individuals. 

"[The state Department of Health Services] appears to have established and rapidly expanded the Enrollment Services Center with little organized planning, limited legislative oversight, and no formal efforts to determine the appropriate mix of contract and state staff," read the report's conclusion. 

[… one]  measure, which recently passed the Republican-controlled Joint Finance Committee on a party-line vote, would require local governments to contract with private road builders for projects costing $100,000 or more in certain situations, rather than using their own public employees. 

"The only ones who seem to benefit are the road builders," said state Senate President Mike Ellis (R-Neenah) in a statement. 

[. . .] Tucked away in the state's budget repair bill was a provision that would allow the state to sell or contract out any state-owned energy asset in no-bid deals with private corporations.

"The department may sell any state−owned heating, cooling, and power plant or may contract with a private entity for the operation of any such plant, with or without solicitation of bids, for any amount that the department determines to be in the best interest of the state," read the legislation.

Questions were immediately raised about whether the arrangement would end up disproportionately benefiting GOP campaign donors, such as the Koch brothers -- speculation that Walker quickly denied. 

4.     Louisiana Privatizing Public-Employee Health Plans

Louisiana Gov. Bobby Jindal is trying to privatize state employees’ health insurance.  Supposedly this will save the state money.  But In the article, LEAKED: Secret Report On Jindal’s Privatization Plan, TPMuckraker reports on a secret report describing what will really occur. 

A confidential report at the center of the debate over Louisiana Gov. Bobby Jindal’s push to privatize state employees’ health insurance has been leaked. The so-called “Chaffe report,” published Tuesday by the Baton Rouge Advocate, seeks to “establish the fair market value of the operations” of the state’s Office of Group Benefits (OGB), which provides health care insurance for around 250,000 state workers, retirees and their dependents.

The Advocate reported that the Chaffe report “concluded that premiums would increase under privatization.”  

According to a story at Colorlines, Bobby Jindal’s Plan to Privatize Health Insurance for 250,000 Workers, Jindal’s privatization plan is very good for Goldman Sachs but not Louisiana, 

Jindal’s plans to privatize the OGB would affect about 250,000 state public employees, retirees, and their dependents. His administration says hiring an outside contractor to run the program would save taxpayers money by eliminating about 150 jobs and generating a recurring savings of over $10 million, in addition to $150 million in up front cash. However, opponents say the OGB does not need fixing, especially since it already has a surplus of a half billion dollars, and that long-term, it would cost more taxpayers money in the form of reduced benefits and increased premiums. Critics, including Louisiana democrats, also accuse Jindal of attempting to raid the $500 million surplus money, to help plug the state’s $1.6 billion budget hole.

“Bobby Jindal’s plan to sell the Office of Group Benefits could jeopardize the quality of health care received by more than 250,000 active and retired Louisiana workers and their dependents… OGB does not cost taxpayers a dime to run and selling it will not save the state of Louisiana any money.” Louisiana Democratic Party Chairman Claude “Buddy” Leach, Jr. said in a statement. “The only folks likely to benefit from the sale of OGB are the big Wall Street corporations like Goldman Sachs who want to turn it into a profit making venture and Bobby Jindal, who would love to get his hands on the office’s half billion dollar reserve fund.”

Indeed, an employee of the state’s Office of Risk Management reported that Goldman Sachs helped write the OGB’s Request for Proposals, and offered the only bid for the advisory role. The employee also said that the surplus would be reportedly split between the state and the purchaser. A new state bill also seems to override Louisiana law that would prohibit the OGB’s surplus from being used by another department in the administration. 

5.     Traffic-law enforcement (including red-light cameras –  decisions are made on profit motive, not good judgement)

Many cities are installing privatized speed and traffic cameras.  But while public law enforcement is interested in justice and fairness, private systems are only interested in profit.  So judgment and compassion are thrown out the window.  For example, some municipalities have contracts requiring them to approve a certain percentage of all tickets, regardless of whether there is a violation that a judge would. The result is that the public, not understanding or caring that the enforcement has been privatized, comes to see local government as little more than one more scammer after their money and loses trust and faith in government in general. 

Profit incentives also threaten public safety, when companies set yellow-light duration times too low.  Some localities even allow these companies to write low yellow-light duration into the contracts, trading public safety for private profit! 

In the report, Caution: Red Light Cameras Ahead: The Risks of Privatizing Traffic Law Enforcement and How to Protect the Public, US PIRG found that,

Privatized traffic law enforcement systems are spreading rapidly across the United States. As many as 700 local jurisdictions have entered into deals with for-profit companies to install camera systems at intersections and along roadways to encourage drivers to obey traffic signals and follow speed limits.

Local contracting for automated traffic enforcement systems may sometimes be a useful tool for keeping drivers and pedestrians safe. But when private firms and municipalities consider revenues first, and safety second, the public interest is threatened.

[. . .] Contracts between private camera vendors and cities can include payment incentives that put profit above traffic safety.

[. . .]  some contracts, including those in the California cities of Bell Gardens, Citrus Heights, Corona and Hawthorne, potentially impose financial penalties on the city if traffic engineers extend the length of the yellow light at intersections with red-light cameras, which would reduce the number of tickets the systems can issue. 

Many Other Nightmares

There are many other nightmares, as state and local governments, defunded by right-wing anti-government tax-cut schemes turn to privatization, sell off public assets and firing public employees to try to stay afloat.  Ares being privatized include highways, airports, water systems, trash collection, bridges, parking garages, nursing homes, traffic schools, and, of course, schools. 

The Biggest Nightmare: Privatization Just Shifts Costs To Other Parts Of Government Or To The Economy

Does government really “save”  if one government agency saves some money by contracting out, but other government agencies have to pick up the same costs.  For example, if the contracting results in pay cuts for working people, then another part of the government might then spend more on poverty, nutrition or health programs for the people who now make so little.   

So does privatization really cut costs, or does it just shift them?  And if it does just shift them (it does) see if you can guess who privatization shifts these costs to?   

But even worse than this shifting of costs to other parts of the government is the bigger picture of what this does to our economy. The result of this “cost-cutting”  is that people in the economy that were making $25/hour now only make perhaps $10/hour and most likely no longer get benefits.  Same larger economy, $15 an hour less.  After a while this adds up, and everyone has less, except for a few at the top.  Kind of like … now. 

The Equation Of Privatization

The equation of privatization works like this: tax cuts leave governments desperate to raise cash, so they sell off public assets (the things We, the People own together) or cut jobs. Then they rent them back or the public pays for their use.  Defunded, Chicago has to sell its parking meters to raise cash; Arizona state capital, same thing.  Privatization is the 1% taking public wealth so they can make money off of it for themselves.  Instead of democracy collecting taxes from the 1% privatization leaves everyone poorer and paying rent to the 1%. 

Private Not Public Interest

There is a fundamental conflict of interest between public and private. When things are privatized of course profit comes first, not public interest.  Public functions are supposed to serve the public, us, We, the People.  The ‘private’ in ‘privatization’ means that it is done for the private gain of a few.  When a public function is privatized it means that instead of operating for the benefit of We, the People – the 99% – it is operated for the benefit of a few – the 1%.