Friday, November 12, 2010

Reason's Unreasonable Article on Privatization; How Privatization Was Derailed by Political Contributions, the Revolving Door and Long Term Contracts

I was recently sent a link to a Reason Magazine article written by Leonard Gilroy in support of Indianapolis' parking privatization plan. Now normally I'm a big fan of Reason which trends libertarians, small government. In fact, I was recently quoted in Reason on the Indiana's civil forfeiture debacle.

Reading the article reminded me of myself as a young man, idealistic about how government could operate better. In the early 1990s, I was one of the first to purchase the book "Reinventing Government" the bible on privatization. In the book authors David Osborne and Ted Gaebler make the compelling case for government privatizing some services.

I took another look at Reinventing Government, the privatization bible, this morning. The authors insist that privatization has to be about putting market competition into the delivery of services. While the authors don't warn of long, multi-generational contracts - I'm not sure they saw those coming down the road - they do warn about contracting out to a sole vendor and that on any large project it's important to have both a majority and minority (not "minority" interms of race or ethnicity) so that government can switch to the minority vendor if the main vendor is not providing services as needed.

Osborn and Gaebler though warn that privatization is not always the answer:
Conservatives have long argued that governments should turn over many of their functions to the private sector --by abandoning some, selling others, and contracting with private firms to handle others. Obviously this makes sense, in some instances. Privatization is one arrow in government's quiver. But just as obviously, privatization is not the solution. Those who advocate it on ideological grounds --because they believe business is always superior to government are selling the American people snake oil.

We don't need to have government employees picking up trash. Privatization done correctly is government contracting out to pick up your trash. If the contractor doesn't do a good job, you switch to another company. That's what privatization is all about. Market competition.

Imagine though if instead of short term deals, the City of Indianapolis decided to bid out trash service for the next 50 years. The winning company, XYZ, provides an upfront payment of several million dollars for the deal. Where's the competition? Well according to Gilory, who doesn't even blink defending the ACS contract lasting 50 years, something I doubt Osborne and Gaebler would have ever supported, that would be perfectly okay. Why? Because to Gilroy, XYZ would want to do really good job because the company would want to win other long-term deals.

In Gilroy's analysis of the ACS parking deal he makes that exact argument, suggesting that the company will want to do a really good job on Indianapolis' parking so that it wins other long term contracts from other cities. The market competition to retain the privatization contract advocated by Osborne and Gaebler as the check government holds goes out the window in Gilroy's analysis. He thinks it is not terribly important that Indianapolis can't give ACS the boot because, hey, if Indy is unhappy with how parking is run, other cities will take notice and steer their business elsewhere.

I empathize with Gilroy's pro-privatization piece because I, as a disciple of privatization, would have written a similar the 1990s. What I did not see coming down the road then were the long term contracts, the political contributions from contractors, and revolving door between contractors and government. All have deeply corrupted the very legitimate competitive marketplace envisioned by Osborne and Gaebler in writing Reinventing Government.

I won't do a blow by blow refutation of his defense of the 50 year ACS deal. Frankly, I'm tired of writing articles tearing apart the flaws contained in the ACS contract, many of which Gilroy simply ignores. But rather I write to challenge Gilroy's idealistic, romanticized version of privatization that is far from the reality of how privatization has played out in practice.

In my work as an attorney, I have seen first hand a case study on how privatization has worked out in the jails here in Marion County. It's been a disaster. CCA that runs Jail #2 has a 10 year contract. They have contributed a lot of money to Sheriff Anderson who is supposed to oversee their contract. CCA is known as the McDonald's of the corrections business.

CCA has an an intake room there where they keep 100-150 people awaiting assignments, which sometimes take 5-7 days. One toilet, no running water.. It's called the "Katrina Room." The CCA doctor there cut out a round of medication so the company could save money hiring staff....which of course increase CCA's bottom line. If you were supposed to get your medicine three times a day, well you're out of luck. If your medicine is too expensive, CCA just give you something cheaper or no medicine at all...again so that the private company can make more money. People who have medical needs often go untreated. CA wants to ship them out so someone else can pay for them. People die and get injured at Jail #2 for not get proper medical care all the time.

At Jail #2, inmates burn holes in the windows and work with people on the ground to bring drugs and other prohibited stuff into the jail.Former employees at Jail #2 report that drug use and sex by employees with inmates is common. Attacks by inmates against other inmates and staff happen frequently. Many cameras and radios at the facility do not work. CCA requires unarmed, untrained nurses to escort inmates throughout the facility. Jail #2 is a hostage situation waiting to happen.

In Gilroy's world, Sheriff Anderson would be enforcing the contract and CCA would be losing other contracts because of their poor performance. But that's not reality. In the real world, CCA contributes a lot of money to politicians, including the person who is supposed to be overseeing the Jail #2 contract, Sheriff Anderson. In seven years, Sheriff Anderson has never done the first investigation into a single incident that has happened at Jail #2, including wrongful deaths alleged to be caused by medical problems. Sheriff Anderson takes the position that once he contracts out a jail responsibility he has no responsibility for it any more.

CCA continues to get other contracts. In Gilroy's world that would have to be because CCA is doing a good job. I assure you CCA's failures are renown, and are all across the country. CCA gets contracts because the company hires powerful politicians and spreads money around.

Of course, CCA Jail #2 can point to the ACA certification that it's doing a job. This is yet another racket. CCA pays ACA, a pro-jail privatization group, a small fortune to get the seal of approval on the prisons and jails the company runs all across the United States. In the two supposed audits it did of Marion County Jail #2 in 2005 and 2008, the ACA report indicated that auditors talked to hundreds of employees and inmates. I too have talked to hundreds of former CCA employees and inmates. None of them have ever been interviewed by an ACA auditor. ACA brags how its audits can be used to convince public officials the private contractor is doing a good job and can be used in lawsuits.

Jail #2 is privatized top to bottom. Jail #1 is run by the Sheriff's Department, except the medical which is run by a private company. The medical department until recently was run by CMS. Everyone who has had brushes with the Marion County jails, including the inmates and employees, say that the difference between how well Jail #2 and #1 is run is like night and day. The Sheriff's Department does an outstanding job running Jail #1...except for the medical which is privatized. Again that's another situation where you have contractor whose work is not being overseen.

The fact is political contributions and the revolving door have corrupted the privatization model that Osborne and Gaebler so eloquently advocated in their 1991 book, Reinventing Government. Now with long term contracts, you have even more undermining of the competitive model of privatization. It is human nature that today's generation of political leaders will gladly mortgage the future with a multi-generation contract in return for upfront cash...and

I understand Gilroy's idealism. I had that same idealism 15 years. But time has taught me that the best ideas about government can get derailed when put into practice. Political contributions, the revolving door and long-term contracts have done exactly that to privatization.


Citizen Kane said...

Maybe I was just born cynical, but I saw through the privatization mantra as soon as it hit the news - frankly I fell out of my chair laughing envisioning the scams - as politicians transferred wealth to their "friends" again and again and again. I never saw privatization as anything but another way to reward friends and punish enemies. If the same malignant politicians are involved in government, why would a "theory" change their behavior. It won't and can't - that is why Marion County corruption, thieving and lying has become standard operating procedure.

Any privatization that involves handing out contracts is doomed to be overtaken by corruption. If government needs to remain tied to a service by managing a contract, then no privatization should occur.

Leslie Sourwine said...

Just curious Paul. If the council and mayor vote for this meter deal and it goes sour would the citizens of Indy be able to bring a lawsuit against them for squandering away taxpayer money? I found this suit filed over the Chicago private meter fiasco and although the suit isn't against the mayor it is against the company that advised the city to take the deal. The case is Bunting v. William Blair & Co. LLC, 10CH40418, Cook County, Illinois, Circuit Court, Chancery Division (Chicago).d

Unigov said...

Gilroy is not helping. By his logic, the city should sell all of its golf courses for $1, because then they would be in private hands.

Again I will relate the story of the Miami tribe. When white people decided to get rid of the tribe, they cut a deal. The chief got a mansion. The tribe was sent west to a reservation.

Ryan Vaughn has cut a deal. ACS gets a lucrative long-term no-bid contract. Wonder what Ryan gets ?