You are hereAlterNet: Privatization Nightmare: 5 Public Services That Should Never Be Handed Over to Greedy Corporations

AlterNet: Privatization Nightmare: 5 Public Services That Should Never Be Handed Over to Greedy Corporations

Why we all pay more when essential services are privatized.

-By Dave Johnson

November 17, 2011- Who gains – and who loses – when public assets and jobs are turned over to the private sector?

The corporate right endlessly promotes “privatization” of public assets and public jobs as a cash-raising or cost-saving measure. Privatization is when the public turns over assets like airports, roads or buildings, or contracts out a public function like trash collection to a private company.  Many cities contract out their trash collection.  To raise cash Arizona even sold its state capital building and leased it back.

The justification for privatization is the old argument that private companies do everything better and more “efficiently” than government, and will find ways to cut costs.  Over and over we hear that companies do everything for less cost than government. But it never seems to sink in that private companies don’t do things unless the people at the top can make a bundle of cash; if the CEO isn’t making millions, that CEO will move the company on to something else.  When government does something they don’t have to pay millions to someone at the top. 

So how do private companies save money?   What costs do companies cut that government doesn’t?  When you hear about “cost-cutting” here is something to consider: what if by “costs” the privatizers are talking about … us?

The Human Cost

A recent NY Times piece brought the human cost of privatization to people’s attention.  In the article, A Hidden Toll as States Shift to Contract Workers, the Times’ Motoko Rich reports,

With state budgets under pressure, Michigan says it can no longer afford the relatively high wages of the public workers, which range from $15 to $20 an hour, along with health and retirement benefits. According to, certified nursing assistants in private long-term care facilities in the area earn a median salary of just over $25,000 a year, or about $12.25 a hour.

Summary: when a public function is privatized the employees get paid less and lose benefits, but other state agencies pick up the costs that occur when people get paid less.  Private managers and executives get a big chunk of the “savings” and then there are the costs to the larger economy from ever more people making less and less.  From the Times article,

Economists and other academics who study outsourcing are divided about whether it usually saves a government money. Recent data from Arizona shows that privately operated prisons often cost more to operate than state-run facilities. A study by the Project on Government Oversight, a nonprofit Washington group, found that in 33 of 35 occupations, using contractors cost the federal government billions of dollars more than using government employees.

Laura Clawson at Daily Kos added to the NY Times story, in, Low-wage contract workers in Michigan veterans home come with hidden costs,

What do you want to bet that guy gets health care, and retirement benefits, and earns more than $10 an hour? And that he's probably not the only person at J2S of whom those things are true. So while the hourly wage a nursing assistant working for J2S gets is $10, the state is paying J2S more. How much more, the New York Times does not report. But Eclectablog points out that the state pays J2S Healthcare Group $15 an hour for those $10 an hour nursing assistants.

When a public job is contracted out, usually public employees are replaced by people who are paid much, much less and receive fewer, if any benefits.  Corporate propagandists complain that public employees are overpaid, receive “lavish” benefits, and are difficult to fire.  But the question we all should ask is: is it in the public interest for Americans to be paid less or more, and to receive or not receive benefits?  If we believe it is better to be paid more and receive benefits then We, the People should do that.

Corruption Incentive

Along with people getting their pay cut, privatization creates an incentive for corruption on the part of public officials.  When a company (or, really, the people at the top of a company) can make a bundle form privatization, then they have a really good reason to bring various forms of … uh …  influence to bear on the public officials that make the decisions about whether or not to privatize.

Five Privatization Nightmares

Here are five nightmares resulting from privatization:

1.Privatized Prisons
Think through the implications of a privatized prison system: if people go to prison it means more profit for the big for-profit prison corporations.  This puts corporations, with all of their influence over the government, in the position of wanting more of us sentenced to long terms in jail so they can make more money!  Even worse, there is an added corporate benefit: cheap prison labor.  

Of course, the result you would expect from these incentives is exactly what has been happening.

For example, you may have heard about the "Kids for Cash" scandal in which Pennsylvania judges pleaded guilty to sentencing kids to privatized detention centers in exchange for payoffs from the profit-making companies that ran the centers.  First the judges arranged for public detention centers to be defunded.  Then they started sentencing a disproportionate number of kids to private detention centers in exchange for bribes.  

The profit incentive to put more and more of us in prison is not just an isolated local problem.  This year The Nation looked into prison privatization, in The Hidden History of ALEC and Prison Labor. They found that the notorious, Koch-funded American Legislative Exchange Council (ALEC), in an effort that is sponsored by the big for-profit prison corporations and companies that benefit from the cheap labor this provides, is helping to pass laws to put more and more of us in jail.  According to The Nation,

… prison labor for the private sector was legally barred for years, to avoid unfair competition with private companies. But this has changed thanks to the American Legislative Exchange Council (ALEC) .... [and their] instrumental role in the explosion of the US prison population in the past few decades. ALEC helped pioneer some of the toughest sentencing laws on the books today, like mandatory minimums for non-violent drug offenders, “three strikes” laws, and “truth in sentencing” laws.

… ALEC has also worked to pass state laws to create private for-profit prisons, a boon to two of its major corporate sponsors: Corrections Corporation of America and Geo Group (formerly Wackenhut Corrections), the largest private prison firms in the country. An In These Times investigation last summer revealed that ALEC arranged secret meetings between Arizona’s state legislators and CCA to draft what became SB 1070, Arizona’s notorious immigration law, to keep CCA prisons flush with immigrant detainees. ALEC has proven expertly capable of devising endless ways to help private corporations benefit from the country’s massive prison population.

[. . .] Much of ALEC’s proposed labor legislation, implemented state by state is allowing replacement of public workers with prisoners.

2.Parking Meters?
Parking meters don’t sound like a big issue, but look what happened to Chicago.  In a 2008 deal with Morgan Stanley, Chicago privatized its parking meters.  In return for $1.15 billion Chicago gave up $11.6 billion of future revenue.  Worse, the city gave up public control of its roads: If any road with parking meters is closed by the city for repairs, street fairs, parades, etc., the city has to come up with cash to cover loss of revenue. The lease eventually ended up under the control of Abu-Dhabi.

Matt Tiabbi wrote in Rolling Stone about the effects of this deal,

To start with something simple, it changed some basic traditions of local Chicago politics. Aldermen who used to have the power to close streets for fairs and festivals or change meter schedules now cannot — or if they do, they have to compensate Chicago Parking Meters LLC for its loss of revenue.

So, for example, when the new ownership told Alderman Scott Waguespack that it wanted to change the meter schedule from 9 a.m. to 6 p.m. Monday through Saturday to 8 a.m. to 9 p.m. seven days a week, the alderman balked and said he'd rather keep the old schedule, at least for 270 of his meters. Chicago Parking Meters then informed him that if he wanted to do that, he would have to pay the company $608,000 over three years.

… Written into the original deal were drastic price increases. In Hairston's and Colon's neighborhoods, meter rates went from 25¢ an hour to $1.00 an hour the first year, and to $1.20 an hour the year after that.

… "There are so many problems — I've had so many problems with them," says Hairston. "It tells you you've got eight minutes left, you get back in seven, and it charges you for the extra hour. Or you don't get a receipt. It's crazy."

But to me, the absolute best detail in this whole deal is the end of holidays. No more free parking on Sunday. No more free parking on Christmas or Easter.



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