The Hidden Cost of Privatization

By Nina Shapiro, Professor Emeritus, Saint Peter’s University. Originally published at the Institute for New Economic Thinking website

While the business of business is business, the business of government is not. This piece points out that while there may be a role for public-private partnerships, not only are the cost savings doubtful, but their effect on the ends of government are extremely worrisome. Public-private partnerships conflate public and private interests, and in conflicts between them, the private interests win out.

In the End of Laissez-Faire, Keynes posed what has become a central task of our time: determining the “agenda” of government, what it should do and not do. We must distinguish, as Keynes puts it, the “technically social services” from the “technically individual” ones. The technically individual services can be provided privately, and thus privatized if they are provided publically, whereas the technically social services cannot. Individuals cannot provide them themselves – it is not in their interests to do so, so if they are to benefit from them, governments must supply them.

Trump and others would have us believe that there are few such “technically social” services – the defense of the nation being, perhaps, the only one. Most government services, they argue, can be provided privately, and provided more efficiently privately. A government agenda, in Keynes’s sense, does not exist. The business of government is no different than that of a business; the government, in fact, is a business, best run by those successful in business, and business criteria, such as profitability and efficiency, should decide what it does “in house” and what it contracts out.

This conception of government, of course, is not new. “Small government” has been a hallmark of the Republican Party for decades, and the privatization of government properties and services has been increasing worldwide since the 1980s. In the earlier period it centered on the privatization of state-owned enterprises, but in more recent times it has shifted to government services (after the 1980s, there were not many government enterprises left to sell off). Privatization today is both more varied and extensive than it was in the past, and since its objective seems to be nothing less than the privatization of the state itself, the question of the state’s “agenda” is critical. We must address the questions about the government that Keynes raised almost a century ago, and we must address them, as Keynes emphasized, without the laissez-faire presumptions of his times and ours, for it is not the case, as he famously wrote, that “private and social interests always coincide.”

Technically Social Services

One of the best examples of a “technically social service” is the macroeconomic one of the Keynesian theory: the recovery from a recession. This recovery, as Keynes would say, is not within the “sphere of the individual.” It is something that only governments can effect, for as Keynes demonstrates in The General Theory, recoveries require increases in the expenditure on products, and neither firms nor households are in a position to increase spending in recessionary times.

In a recession, sales fall and unemployment rises. Firms sell less than they can produce with the productive capacity they have, and sometimes even less than they do produce (when sales fall further than expected). Some firms cannot “break even” on their sales, covering their costs with their revenues, the financially weak ones lose their businesses to creditors, and the losses and slack sales of the recession depress the finances and outlooks of all.

Banks tighten credit as firm bankruptcies rise, making it more difficult to finance production, and firms cut costs as profits decline, setting off a vicious cycle of cost reductions that reduce employment and thus sales, and sales declines that squeeze profits and thus force cost cuts. And while sales would revive, and growth would return, if firms increased their investment expenditure, this is not something firms normally do in a recession.

Small firms lack the funds for investment, and larger, established enterprises, the incentive. Why invest in new facilities when the ones on line cannot be fully or profitably utilized? Capacity utilization rates are too low, and sales too uncertain, for firms to undertake an expansion, and this is the case even though profits would rise if they did. For firms invest to increase their own profits, not the profits of their class, so that the effects of investment on the aggregate profit have no bearing on decisions to invest.[1]

This is not to say that firms would postpone investment indefinitely. The “urge to action,” as Keynes says, is strong, and the growth drive of firms even stronger. Firms that have the funds for investment will be seeking profitable outlets for them. They will seek out new markets for products – though these will probably be found abroad – or develop new products or technologies in the hope of profiting from them in more propitious times. Yet, “animal spirits” can dim for long periods of time, and the losses of recessions can make firms more wary of the risks of investment. The fear of loss can overtake the hope for gain, and the recovery from a recession is too important to leave to the vagaries of business confidence.

The situation of households in a recession is similar to that of firms. Recessions depress their finances also, and increases in spending are even more unlikely in their case than in that of firms. Their borrowing is more limited than the borrowing of firms, and savings less, and, except for the highest income households (the “1 %”), they have fewer and less liquid assets too. Many have their life savings invested in their homes, and houses are difficult to sell in recessions – in the last recession their prices plummeted – while other households have no wealth at all.

The unemployed have little income to spend; they must draw on their savings or that of their families and friends. And while the employed have income, and the employed are a much greater group than the unemployed, their jobs, or the jobs of others in their families, may be the next ones cut. Their jobs are at risk and incomes uncertain, and just as the losses of a recession make firms more cautious in their spending, the unemployment and stagnating wages of recessions make households more cautious in theirs.

It is the saving, not the spending, of households that typically rises in a recession, and that saving is a wholly rational response to their situation. Although most workers keep their jobs during recessions, the fact that they do is no comfort to those that do not, and workers do not know which of them will lose theirs. They must prepare for the eventuality of their unemployment, spending less money today to ensure having some to spend tomorrow, and though the needed savings will vary with the finances of workers and security of their jobs – the wealthy need not save at all – the deeper and longer the recession, the greater will be both the need to save and the number that save. The unemployed will lack earnings for longer periods, and the fear of job loss will rise. More and more households will cut spending, and while these cuts in spending will worsen the recession, reducing further employment and income in the nation, households, like firms, decide their spending on the basis of their own interests. They do not, and cannot, concern themselves with the interests of the nation or households as a whole.

But, while households cannot spend their way out of a recession, their government can do that spending for them. It can increase its spending, providing the amount needed for a revival of the economy. And, insofar as the government represents the populace, and is entrusted with its interests – as is supposed to be the case in a democracy – it must increase its expenditure. The welfare of the public requires it.

Public Goods

The standard texts of economics place little importance on government services. Markets are assumed to work well; they can “fail,” but their failures are rare. And since governments can also fail, or operate inefficiently or incompetently, the government agenda is practically bare. It includes only those services that markets cannot provide at all, in any amount whatsoever, and these “public goods” are difficult to find.

A public good has two distinguishing characteristics: it is “non-excludable” in use and “non-rivalrous” in consumption. The first of these properties means that the good is available for free, as there is no way of limiting or restricting its use, whereas the second means that the good is available to all. It can be consumed by one individual without reducing its availability to another. Its consumption does not destroy it, as the consumption of a hamburger or loaf of bread does. The good remains for others to enjoy and many can do so at the same time and over time. The public at large can benefit from it.

This “non-rivalrous” characteristic occurs in the case of many goods. Creative works (such as literature, music, and art) have it – a Jane Austen novel can be, and has been, enjoyed by many –  as do the information and digital products of modern technologies (such as computer software, the internet, and media streams). But the other characteristic of a public good – the illimitability of its use – is more uncommon. The use of most goods and services can be restricted, limited to those who pay to acquire, enjoy, or license them. Individuals can be excluded through user (or entry) fees and purchase prices, and the excludability of a good removes it from the list of “public goods.” It is decisive.

If individuals can be excluded from the consumption of a good, sales revenues can cover costs. Its production can be profitable, so its private provisioning is possible. But if that excludability is not possible, if individuals can enjoy the good without paying for it or its use, they will “free ride” off the payments of others. Firms will not expect much, if any, profit from its sale, and the good would have to be provided publicly to be provided at all.

The example of such a “public good” favored in economics is the defense of a nation. Its defense defends everyone in the nation, as its arsenals and armed forces protect its territories as a whole. A nation’s defense is thus not only “non-rivalrous,” it is also “non-excludable,” and since the defense itself is not free, and individuals do not pay for services they can acquire for free[2], the government has to fund it. It can be financed through the government only, by its tax revenues or borrowings, and thus provided through it only.

While national security fits the economists’ notion of a public good, it’s not clear what other government services do. Pollution reduction used to be cited in the literature, but its exemplification of a public good is now disputed[3], and many goods and services traditionally provided publicly, such as education, roads and other infrastructure are not “purely” public. Their use can be restricted, through user fees or other charges, but the fact that their use can be limited does not mean that it should. Their access by all may be in the public interest.

Take, for example, the use of roads. These can be tolled, and many are toll roads. Tolls contribute to the expense of maintaining roads, and can even pay back their construction costs.  Yet, many besides the users of a road benefit from it – the businesses on its route to name just a few. These would be hurt along with its users if its tolls reduced traffic flows, so that while tolls can be charged, and the maintenance expense of the road depends on its use, fees for its use must not impede its use. They must be affordable, within the income constraints of users, and in some cases no tolls should be charged at all (as is the case with the interstate highway system of the US). For, as Adam Smith emphasized in The Wealth of Nations, roads and other transport facilities should be undertaken by governments not to increase the revenues  of the “sovereign,” or “defray” the expenses, but to “facilitate the commerce of the nation.”

Commerce, of course, increases the income in a nation, and thus could increase tax revenue. But that rise in tax revenue is not, for Smith, the reason for the promotion of commerce. It should be facilitated not because it generates revenue for the government, or satisfies “special interests,” but because it serves the public interest.  All of the public, regardless of the particularity of their pursuits, has an interest in the commerce of the nation, for, as Smith puts it, in a society with a developed division of labor, a “very small part of a man’s wants” can be supplied by his own labor. He supplies the “far greater part of them” by exchanging his product for the products of others, and every one “thus lives by exchanging, or becomes in some measure a merchant…”

The public investments of Smith’s government are “public works,” not assets. They are decided on the basis of their contributions to the public, and the interests of the public are not just an agglomeration of individual or competing interests either. The public has interests in common, such as the extension of markets and protection of persons and their properties, and the justness of laws and law enforcement matters too, as do educational opportunities.

Smith highlights the importance of an educated public in his discussion of the functions of government. The government must facilitate the instruction of the people as well as the commerce of the nation, and this was the case even though that instruction could be provided privately, as the charges for it could be, and were, exorbitant. The wealthy could afford them, but the public at large could not. The “common people” had neither the time nor money for the instruction of their children; so that for them to be educated, the government would have to either subsidize the instruction or provide it (Smith advocated the establishment of “little” schools in all towns).

Discussions of the advantages of education usually focus on its economic benefits, to both the educated and the nation. These economic benefits, however, were not so significant in Smith’s times, as the jobs available to the “common people” were menial, requiring little skill or understanding, and indeed, it was because they were that their education was paramount. It counteracted the “dulling” of the mind that occurred in the performance of their simple, uninterrupted and repetitive tasks, and was needed not for the advancement of their fortunes, but for the development of their minds. They had to have some minimal understanding of the world, and ability to learn about it, to act intelligently within it, and respect the others in it. A “civil” society required an educated public.

The importance of education for life in a nation in our times is even greater than it was in Smith’s. For we now have democratically elected governments, and, as Smith says, the uneducated are subject to “foolish and rash” acts. They can vote against their interests, voting for candidates whose actions would hurt their interests or the interests of all. Self-interest, as Keynes says, is “not necessarily enlightened,” and it can only become enlightened through education.

Public-Private Partnerships

Governments have found new ways of privatizing services. They “partner” with private enterprises in the provisioning of services, forming various types of “public-private partnerships.” Thus, in the case of an infrastructure project, such as the development of a new highway or water treatment plant, the government could contract out its development to a private company (usually an investment bank or a “special purpose vehicle”). The private concern would finance, design, and construct the facility in exchange for a monthly payment over a specified time (usually 20 to 30 years).[4] The specified payments would cover the estimated present value of the project, and if the facility is already developed – for example some existing highway or public utility – its operation and maintenance could be contracted out or the facility itself leased, with agreed upon payments provided for the services in the first case, and for the public use of the facilities in the second.[5]

While public-private partnerships are contractual agreements in the case of infrastructure partnerships, they need not entail contracts. Thus, in the US, local school boards “partner” with private schools in their districts, subsidizing the purchase of an  education from them (through “educational vouchers”), or allocating some of the school budget to privately run “chartered” schools.” And the health care reforms of the Obama administration also entail public-private partnerships. In this case the government partners with the private (for profit) insurance companies; it subsidizes the purchase of their policies (on the “exchanges”) in exchange for some standardization of policies and coverage (they have to provide some basic coverage at non-discriminatory prices). But, although public-private partnerships take a variety of different forms, the objective of all is the same: making the public investment or service profitable enough to be provided privately.

Public-private partnerships separate the provisioning of government services from their funding. The private enterprise provides the service, whereas the government provides the funding. But, if the government covers the costs of the service, why not provide it itself? Why spend the time and money forming the partnership, and monitoring its outcomes, if it is going to pay for what is done anyway.

The answers to these questions center on the greater efficiency of private enterprise and the consequent cost savings of public-private partnerships. Yet, studies of their use in infrastructure investment provide little support for this presumed cost saving, and, as the critics of these partnerships argue[6], there is little reason to believe that they would save money.  Governments can finance investment at a lower cost than private companies can, and, unlike the investments of governments, those of private concerns must earn a profit. Their capital costs for the same investment will be higher than that of the government’s, and the government must cover all of these in its payments to them. And since private enterprises can fail, and some of those partnered by governments have failed,[7] bail out money has to be factored in as well. The government, as Malcolm Sawyer emphasizes, cannot allow the disruption of essential services (such as air traffic control), and thus must bail out the firms providing them.

Private enterprises may be more efficient than governments, but for a public-private partnership to save taxpayer money, the efficiency of the private firm has to be high enough to offset the higher capital costs of its investment, as well as the cost of enforcing its contract and risk of its failure. And, here, we must remember that the cost savings of private firms can come at the expense of employees and suppliers – governments generally pay more – and at the cost of the services provided as well.  These can be cut, and/or their quality degraded, as has happened in the case of many privatizations (such as that of the prisons).[8]

Costs can be reduced in ways other than through productivity increases. Their reduction may have more to do with the reduction of services or incomes than with efficiency gains, and the profit that drives the economizing of private firms is not received by the people that actually fulfill the government contracts either. The engineers and architects that design the new public facility, and managers that organize its work, are employees of enterprises, as are the construction workers that build it. They can work for the government also, and work as well for it as they do for private employers. For, their performance on the job depends more on the rewards of doing it, and the regard in which the job is held, than the fear of job loss. Indeed, that fear can be counterproductive.

The cost savings of public-private partnerships are certainly doubtful; yet, their effect on the government budget is not the critical consideration. What is more worrisome is their effect on the ends of government.  Public-private partnerships conflate public and private interests, and in conflicts between them, the private interests win out. Governments acquiesce to those interests, and do so if for no other reason than livelihoods depend on the wellbeing of businesses. They provide the jobs.

Private interests dominate the affairs of nations, and public-private partnerships not only reflect the influence of these interests, they also increase it. Government is run more like a business. Investments become “assets”, and citizens “customers”, officials are elected (and appointed) because of their success in business, and services decided by profitability. And since the profitability of a service depends on the relation between benefits and costs, values have to be placed on benefits to the public. The worth of these, in monetary terms, has to be determined, and this requires valuing such invaluable products as clean air and water, healthy and cultured lives.

Of course the means of government are not unlimited, and the services have to be decided. But the means depend on taxes, and taxes can be levied for public purposes (such as they are for health care in many countries), and in the capitalist nations, at least, there is no reason to believe that the resources available would not be sufficient for those purposes. The government spending would not necessarily draw resources out of the private sector, or be inflationary, for, resource scarcity is not, and probably never has been, the central economic problem of capitalist nations. It is the unemployment of resources, not their availability, which has limited the income of these countries and periodically impoverished them.

While the business of business is business, the business of government is not. It has its own functions, an “agenda,” as Keynes puts it. This government agenda must be decided by the interests of the public, and these interests, as we have argued, are not just an agglomeration of individual interests. The public has interests in common, and the determination of these interests, and the actions on them, occur through the institutions of government. Government provides a public space, places and times for public discourse on the affairs of the nation, such as the public hearings of government agencies, the constituent gatherings of elected officials and electoral campaigns. And the political matters discussed through these avenues are decided, and acted on, in the legislature of the government, while the laws enacted there are enforced through the judiciary. The government substantiates the public purpose, keeping it in the conscience of the nation, and this, arguably, is its most important function.

Footnotes

[1] The fact that firms, as Kalecki famously said, “get what they spend,” does not mean that individual firms get what they spend. Kalecki’s theory is macroeconomic, it holds not in the case of the individual firm, but in that of firms as a whole.

[2] Of course they may pay for them, out of respect for the labor of others and right to fair pay, but this regard for others is not in the purview of economics.

[3] Some argue that pollution could be reduced privately, through contracts between polluters and those hurt by their pollution. The latter would agree to pay the former a specified sum in exchange for some amount of pollution reduction, and the amount done would then reflect its “real worth”: the value of the production it reduced or resources it used. See Coase’s discussion in his seminal 1960 article on “The Problem of Social Cost.”

[4] Sometimes it is only the finance and development of the facility that is contracted out, and, in others the operation and maintenance of the facility is contracted also.

[5] If there are user fees for the facility, the private enterprise may acquire the right to set and collect them, and the government may then add to the user fee revenues through “availability payments.”

[6] See, in particular, Malcolm Sawyer’s discussion in his paper on “Private Finance Initiative and Public Private Partnerships: The key issues” (in Critical Essays on the Privatisation Experience, Basingstoke: Palgrave Macmillan, 2008).

[7] See the report on the Texas highway public-private partnership in the San Antonio Express News (September, 2016).

[8] It should be noted, here, that services are notoriously difficult to monitor as there is no real measure of their quality, so the adequate oversight of their provision, by the public or a public agency, is not possible. 

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34 comments

  1. Moneta

    The 65+ population is growing. This cohort needs to fund its retirement. It needs returns amid a dearth of securities.

    Low hanging fruit is most appealing and privatization are such as government assets are typically sold under FMV.

    The writing is on the wall.

    If we want to stop this cycle of financial engineering we’ve got to pay pensions from current GDP and stopped aiming for fully funded pensions.

    1. Moneta

      This cohort is large and growing and the promises made are so huge that market valuations need to ballon to fulfill these promises.

      However, the number of listed companies have dwindled. This need to fund promotes financial engineering.

      Interestingly, most of the posts that revolve around pensions are those that get little attention.

      Most don’t see the link between pension funding and our problematic financial markets.

      1. Jef

        Great comment Moneta, clear and concise.

        I would just add that this need to fund promotes investment in the MIC or any industry that might work its way into that complex, plus investment in tried and true earners such as fossil fuels, auto, industrial ag, pharma, basically all the areas where humanity would benefit from phasing out.

        The surplus is not there in “the green economy” to fill the coffers of wall street and the pension funds.

      2. Left in Wisconsin

        Most don’t see the link between pension funding and our problematic financial markets.

        Not only this but it has been this way for 30+ years, just a disaster.

        Some of us (mostly union types) starting thinking about how pensions work in the 1980s in an effort to try to get unions (that could – most unions have no ability to direct the assets in union pension plans, only fund managers do, which unfortunately has good historical precedent) to direct some pension fund assets to either buyouts of unionized companies that were at risk of closing or at least directing assets away from PE and companies with bad union records. But we could get no traction from anyone: union leadership didn’t want to touch it, fund managers were outraged, any particular investment was always too risky, etc. The Canadian unions were slightly more successful – Quebec I think still has a social investment fund; the Canadian steelworkers started one but I think they have since wound it up.

        AFAIK, virtually all pension funds funds now are deeply into PE and, as Moneta says, have a dwindling supply of public companies remaining to invest in, before you even get into trying to stay out of the worst of the worst.

        “Thankfully,” there are hardly any defined benefit plans left – only in the public sector – and Mish is unfortunately right that many of these are probably headed for disaster and could well destroy public provision of government services in places (Illinois, I’m looking at you first). Here in Wisconsin we have a state db plan that is fully funded because payouts go down as well as up if need be. But even here, we are totally reliant on market “returns.”

        Of course, the defined contribution plans will never meet the retirement needs of most who depend on them. The only question is how much suffering there will be – a lot or really a lot.

        The only real solution is to turn Social Security into a decent retirement plan, not a minimum retirement plan. As, as M says, fund pay-as-you-go. When you think about it, it is really insane for everyone to try to pre-fund their pension.

        1. Moneta

          The other issue is that most of the 55+ I know have chosen a lifestyle that will be unsustainable for the next 30 years yet they are oblivious. They don’t seem to realize how much their real estate will cost them to maintain over the next few decades! Their costs will gradually creep up and they will be angry at our leaders never realizing that they bought more than they could chew a long time ago.

          And if all of them decided to downsize their life over the next decade, we’d be stuck with empty neighborhoods. We shot ourselves in the foot 30 years ago.

          Just last week I was speaking with a 65 year old who complained about her muni taxes and how they were too high. I told her to brace herself for more increases. She looked at me in disbelief. She argued that our leaders must be hiding piles of gold somewhere with all the taxes we are paying. I told her to look around and notice how decrepit the public areas look right now after 15 years of real estate boom. Then I asked her to imagine it when the boom is over. She disagreed and asked to change the subject.

          The reality I am seeing is that the 55+ only want to see change that will protect them in their old age.

          1. Left in Wisconsin

            Well, I think that is probably true for most of the 55+ that haven’t fallen off the lifeboat yet. Just not sure how many of them that is – surely less than half, and very unevenly distributed.

            But very, very many of the 55+ were either never on the lifeboat or have fallen off. They are in despair and vey many I am afraid have basically stopped participating in society. (It would be nice to see voting participation and results by age and income.)

            I also think most older people have also been conditioned for a long time to think of themselves as somehow particularly worthy (which must make falling off the lifeboat particularly hard). Notice how every awful proposal to gut social security starts with exempting everyone 55 and up? What’s up with that?

            1. Moneta

              Because we have universal healthcare and our housing never really dropped, most of our 55+ are not going through what the 55+ in the US are going through. So you can just imagine the entitlement and the delusion here in Canada.

          2. madame de farge

            She is correct, our ‘leaders’ must be hiding piles of gold offshore.. Why do you think NOTHING has been done about the offshore banking. I remember over 20 years ago seeing one single building in an urban downtown was ‘renovated’ for over 100 million dollars……Over the last few years in France, Paris no less’. the Pantheon was ‘renovated’ and the cost was less than 33 million dollars….. The fraud and corruption in the states is EPIDEMIC and that is why we need to simplify the tax code and put the accountants to work on identifying fraud…. There is a reason we pay so much for healthcare and education and it is NOT HEALTHY…..

            1. Moneta

              This reference to pots of gold in hiding makes me think of the kings and queens who sent the sailors to find some gold in the Americas.

              When the galleons came back with their treasure what they ended up getting was inflation.

              Pots of money and gold do not necessarily imply wealth. There needs to be a real investment in the production of goods and services.

              So even if there are pots of gold somewhere that get discovered, we would need at least a generation of good investment before we see a difference… not promising when

              1. We are still clinging to the status quo

              2. And there is a huge cohort about to retire facing broken promises that needs money now!

        2. Allegorio

          How about banning all private pensions, which were designed to undermine Social Security, and rolling them into a Social Security for all? Blasphemy I know! But it would lock out all the middle men (fraudsters). Certainly worthy of debt free money (MMT) and a great economic stabilizer.The nation’s youth being paid to support their elders, who as they age lose agency.

          Privatization is another word for corruption. Government control in a democracy implies accountability, privatization implies corruption and the government picking winners & losers, the right wings hypocritical shibboleth.

    2. Moneta

      And in this system based on individualism, everyone is asked to fund as if they will live to 93. Absurd.

    3. jrs

      we really truly for the long run just need a better, more generous Social Security system. Period. It’s the only thing that will work.

      But the hangers on that still have pensions and will defend them to the death … I don’t know. I mean they think things like they deserve their pensions for working in government and thus choosing to forego higher private sector wages. But they are utterly 100% clueless of the fact that high wages haven’t been possible in the private sector for 20-30 years. So not only millennials but Gen X never had that choice. Public sector wages and benefits now far eclipse anything available in the private sector pretty much.

      Living unsustainably, is not just generational, if older people have the big houses when millennials can’t afford a house at all (more like a shared apartment), millenials still aspire to travel and other unsustainable things. All of them? No of course not, anymore than the boomers are all living large now, it breaks down entirely BY CLASS.

  2. oho

    “Trump and others ”

    Ummm, throw in a lot of Democrats who are for privatization. Democrats are not pure, innocent cherubs on this issue—-just not as obnoxiously loud.

    eg, Mayor Daley 99-year leasing Chicago’s parking meters for a cut rate price.

  3. Chauncey Gardiner

    Not to say the policies to concentrate great wealth in few hands; starve the majority of the population and local and state governments of discretionary fiscal resources; and thereby enable Public-Private Partnership looting of public assets and services by large corporations, wealthy individuals, and politically favored foreign interests are unimportant. But to me the money quote in this piece is this: “One of the best examples of a ‘technically social service’ is the macroeconomic one of the Keynesian theory: the recovery from a recession. This recovery, as Keynes would say, is not within the ‘sphere of the individual.’ It is something that only governments can effect… ”

    I hadn’t seen nor considered this profoundly important government service framed in quite this way. Setting aside the enormous increase in economic inequality and inadequacy of the form this support has taken for the majority of the American people following the 2008 financial collapse, this government service underpinned both the $750 billion under TARP and the massive infusion of trillions of dollars in Cash by the Fed that gives lie to the entire intellectual framework of the neoliberals, their ‘primacy of markets’ mantra and their deregulation and other policies that have so dominated our economy and society. Ironically, it also enables their Public-Private Partnerships.

    Thank you, Nina Shapiro. And thank you, Yves, for this post.

  4. sharonsj

    About 10 years ago or more, Mother Jones magazine did an in-depth article about two states; one privatized a main toll road and one privatized a city’s parking meters. Both were done to obtain up-front money so politicians could pay bills without raising taxes (mostly on businesses). The money was quickly spent. Income from the road and meters, which would have gone into government coffers, went to the new owners instead. So new taxes and fees had to be imposed (on private citizens, of course) to pay for the missing meter income and to fix the non-toll roads that motorists left the toll road to drive on instead.

    In my home state of Pennsylvania, politicians have tried for years to privatize our state liquor authority, which brings in lots of money for the state. They touted Washington state’s privatization of their liquor authority as proof of how wonderful it could be (without providing any facts). I did my own investigation and found out that Washington state’s privatization caused the long unemployment of half the authority’s workers and raised the consumer cost of buying liquor as much as 30%. Eventually it was deemed a failure.

    The push for privatization continues everywhere because our national and local media–which is corporate controlled–does not explain a damn thing to an already stupified public.

    1. Moneta

      Some of the biggest supporters of privatization and ppp are pension plans.

      Managers are in the top 1% and higher, plus
      plan sponsors need outsized returns to get or keep the plans funded.

  5. Vatch

    Privatization in some contexts is an outright crime. Examples are the privatization of drinking water systems in portions of Michigan and Pennsylvania. Flint, Michigan, for example. Here’s an article about this:

    http://pittnews.com/article/113977/opinions/columns/privatization-public-works-poisoned-city-water/

    And just today, a Michigan public official has been charged with involuntary manslaughter in connection with the Flint water crisis. I posted a link in today’s Links section.

  6. Altandmain

    A lot of this privatization is a swindle these days.

    – Customers pay more
    – Services are often cut, despite costing more
    – Employees often see their pay cut, their benefits taken away

    All so that a small number of people can get rich. It’s class warfare.

    The reality is that this is just going to screw people over. Most people do not have the ability to reap the capital gains in stocks because wages are so low that most people cannot save, and in many cases PE is just out to loot the public.

    I think that there needs to be talk of nationalization where the private sector has failed or outright lied.

  7. Susan the other

    This was the strangest thing I have read at NC. The facts notwithstanding – Nina Shapiro writes like the ghost of Keynes. And being a ghost, she is vague almost to disappearing. Public private partnerships are a good way to privatize profits and socialize expenses. If we are given a choice by a government which represents public interests (as Nina claims governments do) then it is much better to have the government do the job and hire all the people who need a job and pay them a living wage. A job guarantee program would be far more efficient in every way than a public private partnership. I’m hoping that little shooting at the baseball park will encourage our “government” to start thinking correctly about public interests.

    1. Moneta

      The top 15% will cheer for privatization as it will appear to boost their portfolio returns and fund their pensions

      1. Jeremy Grimm

        It — [appear[s] to boost their portfolio returns] will of course — programs designed to skin the 99++% will bolster portfolio returns and incidentally bolster 0.1% “pay packets”.

        Nina Shapiro’s channeling of Keynes ghost is as dated as citing Marxist theories. This privatization program is based on neoliberal economics 101. Keynes assumes some sort of Common Good exists. Neoliberalism questions the very existence of a Common Good. Shall we agree to disagree [NOT!!!!!] or find some different direction for our anti-neoliberal arguments in a world where common people have been convinced there is no Common Good. Sometimes I seriously wonder whether we live in a post logical — post contemplative world … a knee-jerk world where Market purchased precepts crowd out all serious thought.

        I am among the retired potters you speak of. I might buy the government guaranteed high yield bonds associated with “privatization” — but it has nothing to do with cheering for privatization. Given a choice between taking loses over time and a collecting nice fat profit by exploiting government beneficence for the 0.01% what political statement would I be making beyond my despair at the horrible constructions of present society.

        I’ll read your threads of comments again — I’m not sure what ax you’re grinding on?

  8. JEHR

    So Canada is going to build a Canadian Infrastructure Bank as a private/public partnership in order to spend billions on infrastructure projects. Not a good idea. This government is going wrong in so many ways and this bank is one of them. Watch the government pay way more than it needs to to its private investors. Man, oh, man.

    1. cnchal

      I couldn’t agree more.

      The same bankster that advised the Wicked Witch of Queens Park to privatize Hydro One, resulting in absurd Ontario power prices so she could plow up a couple of blocks in Scarberia, her home riding, and put in a subway extension, is in Justin’s inner circle advising him.

      The crapification of Canada continues to accelerate. The latest, $30 billion in military spending, the equivalent of digging holes and then filling them in again, so we can defend ourselves against the “enemy”, which is who, exactly? The Chinese elite are coming in with their loot and buying up former crown corporations for peanuts, and our “technology” minster, is fully on board with this. Chinese management will be unsentimental towards Canadian workers, just as they are unsentimental to their own workforce in China, so expect suicide prevention nets to spring up around any Chinese owned companies operating in Canada taller than a couple of stories.

      Collectively, Canadians made a huge mistake electing this group of horrible politicians to power. And seriously, if Justin’s daddy hadn’t been prime minister in the past, there is not a chance he would be prime minister today.

        1. cnchal

          Great non-sequitur.

          It’s about class. The Chinese elite collude with the elite here to strip Chinese labor of the wealth they work to create, and then use that stolen money to buy up our stuff.

          Chinese labor is shot dead if they ever try to organize for better pay and working conditions, and eventually those conditions will be imposed here by the new Chinese overlords.

          Globalization is a disaster anywhere you look.

          1. Moneta

            We’re 37 million while there are 2 billion Indians and Chinese looking for a better life. They will take over. The writing is on the wall.

            No matter what policies Canada chooses, I don’t see how we can stop this phenomenon.

            We fall for the cult of cheap. We decide to go produce there. Give them loads of know how. They build wealth. Peg their currency to the USD. The US prints trillions. They are forced to match. They are overflowing with USD they need to spend
            but face restrictions. So it’s only a matter of time before we get flooded with those trillions that were printed. Money is like water. It follows the path of less resistance.

            1. cnchal

              . . . We decide to go produce there. . .

              We? This is a top down arrangement. The US destroys it’s own manufacturing base, Canada is the mini me and follows along. Our idiot politicians think wealth comes from billing a customer $500 per hour as most of them are narcissistic lawyers. Do you see cheap Chinese lawyers taking jawbs away form Canadian lawyers? I don’t. These politicians could not care less about anybody but themselves.

              The simple fact is that this arrangement is slave labor for the Chinese peasants. They get a bullet to the head if they try to organize for better pay and working conditions, and our government is all on board with this. That means eventually Canadians and Americans can expect a bullet to the head too, as we all get dragged down to their level of slavery. Competition uber alles.

    2. Moneta

      It’s to get access to pension assets… The infra will be funded using pension money looking for returns… less need for issuing Canadas. This is a way of making our government debt look lower.

    3. Moneta

      The contractors will win and the pensioners will probably end up paying for all the cost overruns…. or the taxpayers or the young.

      1. Jeremy Grimm

        I choose doors 1, 2 … and 3 and other doors not yet mentioned which I can’t think of right now … exploitation for the almost almost all.

  9. Disturbed Voter

    Contrary to PM Thatcher, society does exist. The only question is how the public good is handled. With capitalism in general, and privatizing of government services in particular, the point is to benefit a minority of the population, and in turn get campaign financing. With socialism in general, and the preference for government services provided by government employees … the point is to benefit a majority of the population, and in turn get their votes. This is a dialectic, that continues, never to be resolved. We swing for awhile one way, and then the other. The problem remains, how to feed, house etc all these people. No amount of policy fantasy or creative accounting will change this … but because of magical thinking, we keep on trying.

    1. Jeremy Grimm

      YES! Society DOES exist and so does Common Good and … the Market is NOT a tool of epistemology — and how could Hayek or Coase win Nobel Prizes for their … honor-beyond-all-imagined-deserving “theories” of “economics”?

      And that is as inadequate for fighting this Neoliberal monster as re-warmed Keynes or Marx. How has it become so difficult to counter the logic of the self-serving illogic of Neoliberalism?

  10. Left in Wisconsin

    Coincidentally, here is a paragraph I wrote recently for another cause about privatization in Wisconsin. The preface this this paragraph is that the number of public employees is down in Wisconsin since Scott Walker took over and the state was already previously on the low end of public employees per capita:

    As a result, a considerable part of the rise in state spending in recent years is due to the state paying to contract out services that could be more efficiently done by state employees. According to the FY 2016 State of Wisconsin Contractual Services Report, state spending on outside contractors (not including road building and higher education) has risen from $290 million in FY 2010 to $510 million in FY 2016, an average increase of 10% per year. Of the 315 FY 2106 projects for which a cost-benefit analysis comparing the cost of contracting with the cost of using state employees was done, two-thirds showed using public employees was cheaper, often by hundreds of thousands of dollars. Shockingly, Wisconsin does not require the use of state employees when cost-benefit analysis demonstrates that it would be cost effective to do so.

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