Monday, October 6, 2014

Columnist Right on Privatization's Failures, But Wrong on the Reasons

Former Indianapolis Star columnist Dan Carpenter has written an excellent article for the Statehousefile on how privatization has failed.  In it he asks this question:
Could you please tell us again, Mitch Daniels and Grover Norquist and the rest of you libertarian luminaries, how privatization of basic government functions beats letting the government handle the work and control the revenue stream?
Carpenter assumes privatization is wrong in theory.  But privatization is right in theory.  That theory is that by leveraging the power of  the marketplace government can utilize the private sector to provide better services to the public at a lower price...even with the private sector making a profit.
Dan Carpenter

Where privatization failed is not in the idea, but in the implementation.  Instead of creating the market competition needed for privatization to work, government has often handed long term contracts that ensure the private company is insulated from competition (and accountability) regarding the contracted service.  Examples of that are the 75 year toll road deal and the 50 year parking meter deal Indianapolis entered into.  Government creating a private sector monopoly is no better (and indeed probably worse since there is no accountability to the public), than having the government provide the service directly. 

Then you have the problem of no bid contracts, campaign contributions from contractors wanting politicians to get the long-term deals steered to them, and the revolving door between government contractors and the political branch responsible for picking the contractors.  The last thing those government contractors want is to compete for contracts and be held accountable when they provide crappy service.

On my bookshelf I have the bible of privatization, Reinventing Government.   While it talks about possible problems with privatization, nowhere in the tome does it mention the possibility of long-term deals that defeat the market competition needed to make privatization work.  Nowhere in the book is a warning about political contributions and revolving doors working to undermine privatization.

Dan Carpenter is right that privatization has largely failed.  But it didn't fail because of the idea.  It failed because of how it has been implemented.


Nicolas Martin said...

Managed “privatization” is similar to the managed trade agreements like NAFTA. It mocks free markets.

Paul K. Ogden said...

NAFTA is one of the best things that ever happened to the American economy. Free trade is always best for consumers.

Unigov said...

I've seen this article written by others. It's a "stock" article - write a piece questioning privatization, using local examples. I wouldn't be surprised to see a similar article across other Gannett outlets.

Essentially the article is meant to create the impression with the public that government is good, and free enterprise is bad. That's the sole reason for the thing, and Red Dan is the perfect guy to write it.

(btw NAFTA sucks IMO because it's too one-sided - China can pay people $1 a day, and destroy the environment, and thus reduce costs. OTOH, big US labor unions went too far the other way.)