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Privatization

6 min read

Part of Taxes, spending and debt.

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Every episode (2)

Who argued it

Chris Edwards · Adrian Moore

Market Economics · Public Sector Unions

Background

Definition and origins

Bob Zadek offers what he calls his own helpful, handy, non-dictionary definition: privatization describes the process or approach to government that says most functions of government can be better performed by the government outsourcing them and hiring private business to perform the function rather than doing it themselves with civil servants. He adds that it suggests the product will be cheaper and better for all concerned, and calls it the sensible way to run a government. Adrian Moore, vice president of policy at the Reason Foundation, agrees, and dates privatization to the 1960s as a response to the growth of government: typical towns once had police and maybe a fire department and little else, but over time they kept doing more, until virtually nothing done by the private sector is not done by some government somewhere. Privatization, on his account, reverses that trend by letting the private sector do what it can do Fire All Government Workers (2011).

Why government monopolies expand

Moore rejects the premise that cities deliberately choose monopoly public servants. No city sits down and says it needs them, he says; instead a problem arises—too much trash on the street—and residents call City Hall rather than solve it among themselves. The pressure on elected officials to do something is enormous, and a tiny minority can drive the train because everyone else is busy living their lives and not going to city council meetings. So the city hires a couple hundred people and buys a few dozen trucks, and the pattern repeats service after service, year after year. Zadek frames the resulting choice as two questions: whether government should provide the service at all, and if so, whether it should use its own employees or put the job out to the low bidder under a contract specifying the requirements Fire All Government Workers (2011).

The Sandy Springs model

Moore describes Sandy Springs as a suburb of Atlanta and an unincorporated part of Fulton County with about 80,000 residents who were upset for at least a decade and a half with county services. After getting legislation from the state allowing them to form a city, they voted to incorporate, and state law required them to provide police and fire. They added a small number of employees for law-enforcement-like functions such as building inspections, permits and licensing, plus a few whose job is to monitor the private companies doing everything else. They first hired one engineering company, CH2M Hill, to run water, wastewater, trash and streets; when the three-year contracts came up for re-bid, they split the work among several companies for more competition. Zadek says the city estimates it spends about $25 million a year to outsource almost all functions except police and fire and associated services, for a city of 78,000—which they estimate to be half of what they otherwise would spend, with no compromise in quality. Moore adds that four other cities in Georgia and a couple in Colorado have since incorporated using the same model Fire All Government Workers (2011).

Union opposition and the quality debate

Zadek argues the fight is not against workers—often it is the same worker, employed by a contractor rather than the municipality—but a readjustment of how services are delivered, and he rejects the phrase that privatization is an attack on the middle class. To illustrate the heat, he plays a commercial about a municipal hospital in Rhode Island considering turning management over to a private business; the ad warns that jobs of dedicated public employees are in jeopardy and urges listeners to tell legislators to prevent a faceless out-of-state for-profit company from creating another Walter Reed scandal. Moore calls this the level of discourse much of the time, and says the ad led with jobs and treated quality as secondary—a special interest play. He notes that the private sector builds cars, manufactures pharmaceuticals, produces food, and in about a third of the United States produces drinking water, and asks why it cannot care for veterans; he adds that the other community hospital across town is private, run by Catholic Healthcare West, a nonprofit Fire All Government Workers (2011).

Competitive contracting

Moore distinguishes contracting, in which the city hires one company that is therefore still a monopoly, from arrangements that preserve competition. Phoenix and Charlotte, he says, divided the city into four parts and signed four separate contracts with four different companies to pick up trash, so that a year later the best performer could be given two parts of the city and the worst dropped. That puts competitive pressure on to keep quality up. He also stresses that the claim the private sector never provides bad service is equally false; choice and competition are the crucial things, and with government services you do not have the choice you have when you quit one bank for another Fire All Government Workers (2011).

The Pennsylvania liquor store example

Zadek raises Pennsylvania, where liquor stores are government-owned and government-run, with not much selection, high prices and limited hours, and where a movement sought privatization. He cites a study finding the state could save or earn $2 billion by privatizing them, and a New York Times news report that said privatization would potentially bring $2 billion for state coffers but also layoffs of several thousand state workers—which Zadek treats as evidence of bias, asking how layoffs could be a minus if the state saves the salaries. Moore responds that this is the politics of privatization in a nutshell Fire All Government Workers (2011).

Across episodes

Only one episode is represented in these episodes, so the sources show no development across episodes; the topic is treated in a single 2011 discussion between Bob Zadek and Adrian Moore.

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