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Prospecting Among the Poor: Welfare Privatization

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Even before the Personal Responsibility and Work Opportunity Act of 1996 was signed, sealed, and delivered to the states, the conservative Reason Foundation’s William Eggers and John O’Leary had lauded “aggressive” privatization initiatives in New York, California, New Jersey, Massachusetts, and Georgia.

New York Governor George Pataki, chair of the Privatization Task Force of the Republican Governors Association, had argued at a meeting of governors that it was time for the immediate repeal of federal barriers to privatization at the state and local levels: “Existing federal policies favor government ownership of infrastructure. We are not looking at privatization as a mandate. We just want the option to explore privatization…The federal government should aid and abet, not interfere with, our efforts.”

The new law was the answer to Pataki’s prayers. It gave states unprecedented latitude to determine how the new Temporary Assistance for Needy Families (TANF) and related programs would be handled. Individual states were “liberated” free to set up their own delivery systems within broad federal requirements. Many states, when confronted with the daunting task of rapidly implementing this “reform,” chose to contract out services to nonprofit organizations and for-profit corporations.

The privatization of welfare was a triumph for many Republican as well as some Democratic governors, and for conservative national and state legislators.

Policy analysts at right-wing think tanks and policy institutes were also elated. In a 1997 speech, Lawrence W. Reed, President of the conservative Midland, Michigan-based Mackinac Center for Public Policy, touted privatization as the wave of the future: “The superiority of [privatization]…is now approaching the status of undisputed, conventional wisdom: the private sector exacts a toll from the inefficient for their poor performance, compels the service provider or asset owner to concern himself with the wishes of customers, and spurs a dynamic, never-ending pursuit of excellence – all without any of the political baggage that haunts the public sector as elements of its very nature.”

Some observers were less convinced that privatization would improve anything besides the privatizers’ bottom lines. “This is one of the biggest corporate grabs in history,” said Sandy Felder, Public Sector Coordinator for SEIU, commenting on the Personal Responsibility and Work Opportunity Reconciliation Act, signed into law by President Clinton. In 1997 Mark Dunlea, executive director of the Hunger Action Network of New York, predicted that “the privatization of welfarerelated social services…will mean a massive handoff from government to the private sector.”

“The federal government turned over $16 billion in TANF money to the states without setting any federal standards for privatization,” says Cecilia Perry, public policy analyst for AFSCME. The early contracts in Wisconsin were particularly egregious in that they set “perverse incentives aimed at reducing caseloads and making huge profits.” Yet in March 1997, Phillip Truluck, Executive Vice President of the Heritage Foundation, hailed then-Governor of Wisconsin Tommy Thompson (who is now President Bush’s Secretary of Health and Human Services) as “the real star of welfare reform today…whose perseverance and dedication brought about this Wisconsin miracle.”

Private industry takeover of government programs is not a new phenomenon. In the early 1960s Ross Perot’s Electronic Data Systems won the contract to manage the Texas Medicaid program. “For years,” writes Washington Post reporter Judith Havemann, “states have been relying on business to carry out what used to be considered government work; food conglomerates manage school cafeterias and banks in many areas have taken over the collection of taxes. More recently, an entire new industry has emerged to run prisons.”7 Time magazine notes that passage of the welfare reform bill set off a “welfare-management goldrush.”

Many corporations, large and small, are taking advantage of this modern-day “goldrush.” These range from the corporate elite – such as Lockheed Martin, Andersen Consulting, “the world’s largest management and technology firm” (now renamed Accenture), and Ross Perot’s Electronic Data Systems – to smaller companies like the rapidly expanding Denver, Colorado-based Policy Services Inc., which has 39 privatized service locations in 16 states and bills itself as the “first company to operate a full-service child support privatized office.” Other prospectors include Nebraska-based Curtis & Associates and the flourishing Maximus Inc., which as of May 1999 held a “30% share of this booming privatization market in health and human services.” Despite the fact that Maximus seemed ready to mine the mother lode of privatization, the company is now fighting a growing negative image as things seem to be going haywire in a number of programs.