Wednesday, September 17, 2008

Privatization: Why Governor Daniels and Jill Long Thompson Are Both Right on the Issue

A quick glance at media coverage of the Indiana Governor's Race, one would believe there is no bigger divide than over the issue of privatization. A trained ear though would detect the two candidates are talking past each other. Governor Daniels and Jill Long Thompson are, in fact, both making valid points about privatization.

Let me explain. When Governor Daniels addresses privatization on the campaign trail he's talking about the idea of privatization, the notion that the taxpayers benefit when market competition is instilled into the provision of government services. He's's a good idea.

When Democrat Jill Long Thompson talks about privatization during the campaign, she's talking about how privatization has been put into practice. She makes the point that not every service lends itself to privatization and abuses have happened. She's right...when put into practice the idea of privatization has often fallen short or led to abuses.

During the 1990s, I spent considerable time study privatization and then watching it be put into practice by people such as then Indianapolis Mayor Steve Goldsmith. I, thought, and still think, it is a good idea. But I've also witnessed the idea of privatization failing terribly in practice. For example, as an attorney I have dealt extensively with corrections privatization over the past nine months or more. The failures I've seen with correctional privatization, especially privatized medical care for inmates, are shocking to even to someone with the most right-wing, throw them in jail mindset. Corners are routinely cut so those private correctional companies can make more money, even though inmates end up injured or even die as a result of not getting their medicine or treatment. In the private jails, these are often people who haven't even been convicted of anything. They're in the facility because they can't afford bail. And if you don't think innocent people are wrongly jailed, read the story I wrote about the mentally disabled client I represented who was accused of robbery.

Before privatizing a service, government officials need to ask themselves some questions to ascertain whether this is a service where privatization would actually work to instill market competition into the delivery of that service. If not, then maybe it is not a service that should be privatized.

I came up with several things I would consider before voting to privatize a government service.


1) Are there several vendors who are capable of and interested in providing the service?
--If there is only one or two vendors that can provide the service, then you're not instilling market competition into the delivery of the service. You're exposing taxpayers to a monopoly mandated by government.

2) Is the contract for a service that will be bid out?
---A contract that will be subject to bidding rules is less likely to be one where the vendor gets the service because of political contacts or campaign contributions.

3) Is the vendor going to be given a long term contract?
---When you give a vendor a long term contract, then the vendor doesn't have to worry about market competition if they don't provide the service well. The whole idea of privatization is defeated.

4) Is this a service that is going to be provided out in the open, so the public can judge the quality of the service provided by the vendor?
---Garbage collection everyone sees. The running of a maximum security prison is done behind closed doors. The public knows if the company picking up the garbage is doing a good job. The public knows little about how well the prison is being run.

5) Are the individuals who are receiving the service which might be privatized, people who are politically powerless or unpopular?
---Classic example is correctional privatization. A sizable portion of the population doesn't care if private correctional companies cut corners on medicine or medical treatment of inmates. So even though the company may not be living up to their obligations under the privatization contract, that contract often is not enforced by public officials who do not have to worry about the powerless constituency receiving the service. By the way, I would say another example of people without much political power are welfare recipients. Witness the recent FSSA privatization effort here in Indiana.

6) Is the company providing the service going to be properly supervised and held accountable if the vendor doesn't live up to the contract?
---Too often services get privatized and government does not do adequate monitoring of compliance with terms of the contract. The tendency for government is to just pass blame along to the private company. It doesn't work like that though...government is still legally responsible for the provision of the service, even if it's contracted out to a private vendor.

7) Is the company bidding on the privatization contract willing to subject itself itself to the open records law and disclosure requirements public agencies providing that service would have to follow?
---Although providing a public service paid for with taxpayer dollars, many companies insist on operating in secrecy. They claim the secrecy is to protect itself from having the company's secrets stolen. Don't buy that nonsense. The real reason for the scrutiny is that the companies do not want to provide information that could be used to show they are not doing a good job.

8) Did the company or its top employees make large campaign contributions to elected officials and candidates who were in a position to influence the privatization decision?
---Privatization has unfortunately become a vehicle by which elected officials and candidates can generate large campaign contributions from companies interested in currying favor. Even after the decision is made, the money train continues because the companies want to keep the elected officials happy and avoid the scrutiny and criticism of their performance.

9) Is the company hiring local politicians in an attempt influence the privatization decision or reduce the criticism of their performance under an existing privatization contract?
---It's the oldest game in privatization. A private company which offers a service hires the elected official who was responsible for the government providing that service to the public. The person isn't being hired for his or her expertise. The person is being hired for political influence.

1 comment:

The Urbanophile said...

I prefer not to use the term "privatization". When the government contracts with a private firm to provide a service, that's a straightforward outsourcing arrangement and should be viewed as such. Not that it is bad by any means, but it is not true privatization.

Real privatization would be something like the city saying it is getting out of the trash collection business and leaving it up to individuals to do their own contracting with any of a number of private companies in the market. The key differentiators here are that the consumers of the service directly contract for it, and there is a constellation of competitive providers. Incidentally, many cities don't provide trash collection service and the private market does take care of it.