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Looting the Urban Commonwealth: Privatization and the Politics of Austerity

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Privatization, the turning over of operational control of socially important goods to private parties, has far larger social costs than are recognized in the way its promoters frame the debate. They present privatization proposals in abstract terms that mask their true complexity: for example, contracting out the delivery of public education to charter schools is portrayed as little different, as a matter of market-based competition, from seeking a contractor for the delivery of office supplies. But measured in terms of social import, there is a vast difference between the purchase of a ream of paper and the education of the citizenry. The former is a commonplace transaction with little impact beyond the money for goods exchanged between buyer and seller. The latter is a core government responsibility, integral to the public sector’s primary duty to promote the general welfare. Social goods, such as public education, differ vastly from private goods such as office supplies because their full value to society is not captured in the dollar value of the market transaction between the buyer and seller. When goods that create these powerful and broad indirect benefits, called social goods, are left to the vagaries of private markets, it is well known that they will be under-produced relative to their social value.

Because social value is almost never captured in the prices that the direct beneficiaries are able or willing to pay, questions of public finance and cost recovery become especially important. Here, too, privatization promoters seek to muddy the waters. There is no theoretical reason, they argue, that social goods cannot be provided by private contractors through properly written contracts. However, when the real-world practicalities of meaningful public oversight, inevitable uncertainty about changing events, and/or necessary public subsidies are considered, the prospect as even a purely economic proposition becomes less appealing. Nonetheless, it is upon this theoretic abstraction that the entire edifice of privatization promotion stands. Whether privatization is implemented through a service delivery contract (charter schools) or a long-term contractual obligation to maintaining a revenue-producing item of public infrastructure via a “public private partnership” or “P3” (tolled highways), the underlying promotional argument remains the same; a contractual private provider will some how, thanks to “market competition,” provide the publicly required goods better, faster, and less expensively than could the public sector through direct production.

That is the theory; practice over several decades has proven to be an entirely different matter. By now we have, literally, file drawers full of case-based evidence and studies that document that privatization does not work as predicted, too often providing inferior goods at higher prices with more delays. Despite this, the drive to privatize continues. The reason is simple. Regardless of how poorly any venture turns out, virtually all of them are profitable for the promoters and providers. The structural cause of this situation can be summed up simply: privatization invariably privileges the profit needs of private providers over the vital social goods needs of society.