Saturday, October 25, 2008

Privatize the Hoosier Lottery? RIP a very bad idea

Saturday's Indianapolis Star notes that Governor Mitch Daniels has withdrawn his proposal to privatize the Hoosier Lottery as an option of funding a college scholarship program after the U.S. Department of Justice said doing so would not comply with federal law.

This was never one of Mitch's good ideas. As I've said previously, Republicans have forgotten the fundamental principle of privatization. That principle is to inject market competition into the provision of a government service. As the article notes there were only a couple vendors ready to compete for the service and the winner was to be awarded with a long term term lease. It was exposing Hoosiers to a state-sanctioned monopoly. In addition, because so many decisions regarding a privatized lottery would be made behind closed doors, the odds of corruption seeping into the running of the lottery would have been great. The argument might be that the lease will prohibit misconduct and contract compliance will be tight, but government officials have a poor history of closely monitoring privatization contracts, especially long-term ones, and enforcing compliance. One only has to look at the sordid history of correctional privatization to see that.

As a conservative, I opposed a privatized lottery for another reason. Make no mistate, it would have been an expansion of gambling in this state, maybe the biggest expansion ever. Kiosks selling lottery tickets, misleading television commercials promoting the lottery, new games, etc. would have been the result. One of the saddest things I see is when I go into the store near my office and seeing people, who obviously have little money, buying $30, $40, $50 in lottery tickets. A private company would have promoted this behavior to a much greater degree than is presently the case.

Back to privatization. Earlier I posted my rules on privatization. Basically they are a set of questions that should be asked as to every privatization proposal. Lottery privatization would fail the test.


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.


Anonymous said...

Right on Mr. Ogden! Your privatization guide are and should be the standard.

Anonymous said...

Sorry folks, that comment should read:

Your privatization guidelines are & should be the standard.

Paul K. Ogden said...

Thanks, Pete. I think the original idea behind competition regarding the delivery of services has been fogotten.

varangianguard said...

Number 9 sounds a lot like how the cable franchises were awarded (back when) in Marion county.

Anonymous said...

You have outlined exactly why most privatization schemes are just that - schemes to pretend that government is being reformed when in fact it has been abused (as most government schemes have been) to favor friends and punish enemies.