Government and governing is expensive. As more and more projects are required, somehow government either has to find funding through taxation or other debt-incurring bond issues, or it will have to find the means to sell some functions to the private sector. The idea of privatization is occurring not only in the U.S., but worldwide. And, in reviewing the latest literature and reports from around the world, privatization’s successes are a mixed bag. The idea was for governments to save money by turning over various of their functions to the private sector, without interruption of service, and with quality as high or higher than governments were able to provide.
One would think that the advantages to the ultimate consumer would be that bureaucratic mazes of government workers would now no longer be involved in many activities and that the private sector, more efficient (?) would be able to not only turn a profit, but do so at the same time services would improve. This is, of course, wishful thinking for the most part.
In my research, only one positive success story now underway, made news. “The South Korean government unveiled a far-reaching plan to sell back to the private sector most of the controlling stakes in banks that it had acquired at the climax of the 1997-98 economic crisis….As an industry, Korean banks turned a profit in 2001 for the first time in five years….The government now plans to sell the rest of its stake by the first half of 2003.” (Kirk W 1) The success was not only government take-over for a large number of banks, but now that the system is profitable, returning it to private hands, assured that profitability will continue.
Japan is now considering privatizing some or all of its airports. “It would be a new concept in Japan, which has 136 airports of various sizes, including 790 that are owned by the Ministry of Land, Infrastructure and Transport….Only Tokyo’s Haneda airport, the busiest in Asia, regularly reports annual profits….But if privatized, (one) wonders what will hap[pen to the profits Haneda generates. They are now being plowed back into national airport projects.” (Sekigawa 54) Of course, those profits would be retained, if privatized. And, what would happen to the losses at other airports, now heavily subsidized by the government? Would services be reduced, landing fees increased? There is no simple answer, and none seems to be forthcoming yet from Japanese planners. It is also interesting to note thast some of the reasons for potentially privatizing is that government forecasts of increasing passenger traffic at some of Japan’s airports not only were far too high, but such a low number of passenge3rs actually used some of the airports that even the most generous government subsidy has not been able to stem the red ink (or whatever passes in Japan for red ink). While the government would love to get rid of these money-losing operations, who will buy them operate them, and try to make a profit out of them?
Anther example of the failure of privatization can be seen in the British railway system. “The performance of the train operating companies has deteriorated…This is because worries about the state of the track have led to speed limits and more maintenance work…The big increase in services since privatization has so overstretched the network….that it is now a prime cause of delays….Michael Holden, director of Railtrack’s southern zone, says the network is suffering ‘the worst level of punctuality’ that he has known in his 20-year career/” (Economist 45) There is an anomaly here. Passenger traffic is up, in part because of overcrowded highways, and the private companies set up by the government have not been able to repair or maintain tracks or account for the passenger increase with more trains or more railway cars. And now, there is talk of privatizing the London tubes (their subway system).
In some countries, the government controls even the arts. Italy is one such example, and it is now looking to privatize. There was a vague bill passed in the Italian legislature which “authorized the Culture Ministry to ‘assign to private enterprise the full management of services connected to the enjoyment of cultural heritage’.” (Randall A 16) Part of the reason is that some $219 million have been cut from the budget of the Cultural Minister’s budget. That money has to be replaced somehow. So, Italy is not only offering concessions (that is, refreshment stands, bookstores, souvenir shops) but also tax breaks for wealthy private investors willing to subsidize museums or other cultural sites. So far, the program has not been set up, but time is short to keep museums open and tourists and visitors coming. Unlike American museums which run through donations and private gifts, Italy’s heritage sites are government-run at the moment. So, the question asked by both art lovers and Italian government officials about privatization include whether profit-=seeking managers will drive some historical sites and museums to what they call a radical “dumbing-down” in pursuit of ticket sales: renting out museums for private parties or for movie sets. “Will they try to recoup their losses by renting out Roman ruins and Renaissance picture galleries for weddings and cocktail parties? Will they court publicity-seeking sponsors with embarrassing deals for sweetheart exhibitions?” (Randall A 16)
Of course, in this country one enormous on-going debate concerns the possibility of privatizing Social Security (see below), but Canada now has a national health system which may be privatized. “Universal health care is as much a source of Canada’s identity and national pride as the red maple leaf stitched to its flag….Yet while most Canadians are satisfied with the current system, economic pressure is building for reform. As a result, three provincial premiers are signaling a move toward privatization which could significantly alter the Canadian healthcare landscape.” (Brown 7) In a recent poll, some sixty percent of Canadians said that they would accept private health care services as a way to solve the health crunch, and nearly fifty percent agreed that they would be willing to pay “user fees”.
Now, what about this country? We start by looking at the privatization of utilities in some cities, like New Orleans and Atlanta. Atlanta entered into a 20-pyear services contract with United Water Services, but there is a lot of controversy over the private company’s billing and maintenance. In fact, the company asked for an additional $80 million from Atlanta’s city government, which the city is unwilling to pay. Actually, Atlanta still owns the hundred-year old system,. And United covers all water operations, from treatment to bill collection. This argument over money and control also has resulted in capital repairs lagging far behind, “which will cost $3.5 billion by 2014. Atlanta faces three federal orders to address poor water quality, sewer overflows and its overall sewer syst6em…Atlanta was counting on cost savings from its water contract to help pay for sewer repairs… The city has hiked sewer rates more than 40% since 1998 to finance bond issues for repairs.” (Stuart 1) New Orleans is not quite in the same boat, with only about $1 billion needed for maintenance and repairs for water and sewer systems, and just one federal consent decree.
The U.S. passenger rail system is a mess. There is no other word for it. “From its creation in 1970, Amtrak was conceived of as a private company, but one in which the government owned a majority stake…Last year, Amtrak lost a record $1.1 billion….Amtrak itself has told the government it needs more than $1.2 billion above its normal appropriation for the coming year, or it will stop service on some of its long routes.” (Chinni 3) The question, of course, is whether Amtrak should be totally privatized, and put back in the hands of the various private railroad companies that divested themselves of passenger service in 1970- companies like Santa Fe, Union Pacific, and the newly formed Conrail. Along with railroad company mergers, these companies now thrive on freight and want no part of passenger traffic any longer. And, even if the government could persuade some of them to take over passenger routes, they would surely not do so without continuing government subsidies. So, in essence, no one would save- certainly not the taxpayers.
Public versus private education is also a major topic now. Not the exclusive “prep” schools for the wealthy, but so-called “charter schools are on the increase, even though only about 1% of America’s students attend them. “The idea behind charter schools is simple: The are public schools operated by parents, teachers, community groups- anyone who agrees to improve student achievement in exchange for fewer rules and regulations and promises to handle their budgets wisely.” (Henry 1D)
There are now some 2,100 charter schools in 37 states, the District of Columbia and Puerto Rico. For the most part, charter school students seem to do better of various achievement tests. The Bush administration, in encouraging the use of school vouchers, now make it possible for parents to use those vouchers for charter schools. If there is an important requirement in most of these schools it is that it requires parent participation. In fact, in some cases there is a minimum number of hours per year that a parent must put in for various tasks within the school. Of course, there are many educators who feel that this more-or-less private schools system works because the parents are far more involved (they are literally forced to be) than in regular public schools. However, on the negative side, there are educators who feel that the charter schools are skimming the cream of the crop out of their public schools, and since many school systems get government funding on a per-pupil basis, by losing students, the school systems are losing money. Losing money means that there are a number of problems- including fewer athletic events, fewer text books and computers available on the regular budget.
There is another downside to charter schools: the fact that there are some somewhat “shady” enterprises literally going from door to door in some poor neighborhoods, canvassing parents to help vote for their managing their local (and often poor-performing) schools. Edison Learning Corporation is one such private “management” firm under close scrutiny. Even though they manage schools in 21 states and the District of Columbia, and are among the aggressive canvassers, even promising the use of “free” computers to children of parents who “vote” for their running neighborhood schools; the results seem to show that Edison is not living up to its promises. According to its critics, students in the company’s schools typically do no better, and sometimes do worse, than those in comparable district-run schools.
Perhaps nowhere is this battle between privatization and government control more visible in this country than in the prison systems. So, this study concentrates on the fact that, often, the privatization of prisons simply does not work as expected.
Prison populations in the U.S. are growing more rapidly than prisons seem to be able to hold them. We often hear of prisoners being granted early parole merely to reduce the prison’s over-population. As an FBI report stated as early as 1990, “Very few people would dispute that this Nation’s prison system is in serious trouble…It’s no wonder that in response to these pressures, public officials are grasping for ideas and solutions to the prison problem. One major idea continually proposed is the private contracting and operation…of adult correctional facilities. (Burright 1)
“The cost of corrections- including state, local, and federal corrections budgets- ran to more than $20- billion a year in the early 1990s. The cost of constructing new cells just to keep up with the constant increase in prisoners is estimated at $6 billion a year.” (Smith 2) But, the real problem with the privatization of the prison facilities in this country are summed up by Smith: “Should we, as a society, shift responsibility for the ultimate sanction by which we measure normative behavior to those whose motive is profit?” (Smith 4)
And yet, “The U.S. General Accounting Office reviewed the issue and twice concluded that there was not enough evidence to show whether private prisons were more or less expensive than public prisons.” (Clement 8)
However, the most publicity, debate, dispute and vehement argument on both sides concerns the Social Security System. There are many various reports about whether the system will remain viable. There were optimistic reports at the end of the Clinton Administration, given the surplus and the debt reduction. However, with the new spending forced by the September 11 terrorist attacks, the system is now seen as potentially bankrupt within a decade. President Bush has suggested that individuals could invest a portion of their social security payments in private funds- stocks, bonds, etc. rather than having it “held” for them by the government.
“The administration’s determination to press ahead with Social Security privatization at this time has to rank high in the ‘Ironies of American History’ record book.” (Frank 31) AS Frank concludes his anti-privatization argument, he blames the commission set up by President Bush as proposing that Social Security be replaced by a system of compulsory saving in which everyone’s payroll taxes will go to his own account alone and be invested however he chooses. What is missing, so Frank claims, is that Social Security is no longer “social insurance”.
What needs to be stated, of course, is that Social Security now operates with an enormous bureaucracy. If privatization is actually accomplished, who will run the privatized Social Security- and what will happen to the bureaucrats now under government salaries?
On these pages, there has been only a brief overview of what is happening in the world- and in America, where privatization is either being considered, or is working (if not well). There are all too few examples where privatization is working successfully. This includes the “new” Russia, which has now privatized much of its industrial complex, but it has neither raised the standard of living of the average Russian, nor made more goods available to him. In fact, privatization has created some instant millionaires, developed a Russian mafia which strong-arms and murders even government officials, and reaches worldwide, but has also brought greedy speculators in from other nations to skim off the profits once promised to Russian citizens.
Privatization, at one time, was considered something an autocratic, dictatorial government (usually in the Third World) created in order to gain kickbacks., However, it seems that republics are privatizing, or thinking about privatizing their governmental functions at a higher percentage.
Perhaps the real reason there is so much failure is that when the government controlled the functions, there was no great pressure to perform, succeed, or be efficient and economical, There would always be government handouts and grants and subsidies. On their own, private companies are having a difficult time even trying to maintain the status quo without re-assessing their economic agreements. In retrospect, maybe it is no more costly or wasteful to let our governments run things.
Perhaps for=-profit operations of public works are no answer.
Brown, Barry: Canadian Provinces move toward privatizing healthcare” Boston MA: Christian Science Monitor, Feb. 28, 2002
Burright, Lt. David K.: “Privatization of Prisons: Fad or Future?” Washington D.C.: FBI Law Enforcement Bulletin, Feb., 1990
Chinni, Dante: “Amtrak reform picks up steam- again” Boston MA: Christian Science Monitor, March 11, 2002
Clement, Douglas: “Private vs. public: The Prison Debate” Minneapolis MN: Fedgazette, Jan. 2002
Frank, Thomas: “The trillion-dollar hustle” Harper’s Magazine, Jan, 2002
Henry, Tamara: “Chartert Schools: Pledge Success-Movement Gaining a Public Foothold” USA TODAY, Nov. 14, 2001
Kirk, Don: With Growth in Sight, Korea Plans Privatization for Banks” New York TIMES, March 7, 2002
Randall, Frederika: “Eye on Rome: Privatize the Arts in Italy? Egads!” New York: Wall Street Journal, Feb. 14, 2002
Sekigawa, Eiichiro: “Japan Eyes Privatization to Lower Airport Costs” New York: Aviation Week & Space Technology, June 11, 2001
Stuart, Stephen: “Water privatization not bonanza Atlanta expected” New Orleans cityBusiness, March 4, 2002
No author listed: “Britain: That’s enough passengers: Railways” London UK: The Economist, Jan 5, 2002
Smith, Phil: “Private Prisons: Profits of Crime” Covert ActionQuarterly, Fall, 1993