PRIVATIZATION STUDY

The following material is reproduced with permission from the Polk County, FL LWV.

Privatization Study Overview

Privatization is a movement to deregulate private industry and transfer many government services, assets and functions to the private sector. We, as citizens of the United States, have been experiencing the growing effects of the privatization movement since the 1980s. Privatization efforts have been tried (with varying degrees of success) on federal, state and local levels. Federal efforts include Social Security/Medicare, student loans, military services and interstate highways. On the state and local level, agencies responsible for social services, transportation, mental health & public health care, corrections, and education have all seen remarkable increases in privatization activities since 1988.

The pace of the movement to privatize has escalated since 2008. The current economic recession and the trend in government over the years to reduce taxes have increased government budget deficits. The current recession is resulting in business failures, high unemployment, and a loss of tax revenues for federal, state and local governments. These revenue losses have added to the drive to downsize government by privatizing functions, services and assets. As was discovered throughout the study, as Connie Prince points out in the education article below, “information is limited because most of the operations are proprietary in a private company leading to a lack of transparency.” That factor causes a bit of an unbalance in the study materials toward the negative effects of privatization in general. Failures are usually publicized and glaring, while actual facts are still behind the closed books of the private companies.

State Laws Addressing Privatization

 Рsubmitted by Bill Stinson

Over the past few decades, state legislatures throughout the country have enacted state laws addressing privatization activities. By the early 1990s, several state legislatures, seeking to realize the promised benefits of cost savings and efficiency gains, had designed and enacted comprehensive, systematic privatization programs for their states. A decade later, however, no consensus had developed as to the effectiveness of privatization (outsourcing or contracting out), due, in part, to the lack of empirical data as well as the complexity of the issue. Consequently, the topic of privatization re-emerged as a controversial management issue for state policymakers. In fact, based upon its national survey, the Council of State Governments concluded in a 2003 report that many state agency directors had no clear idea of how much money privatization had actually saved.

Across the 50 states, legislative approaches to privatization differ widely, and while some states have enacted laws that promote and facilitate privatization, others have enacted laws seeking to regulate and curtail such activity. Moreover, such legislative approaches differ in scope. Some states have enacted broad-based privatization laws that apply to all such activity within the state (general privatization laws), such as the Massachusetts Pacheco law that tends to restrict and regulate such activities. Other states have passed laws that relate only to one or more sectors (sector-specific privatization laws), such as the Tennessee private prison contracting act, which, according to some commentators, has led to the rise of the national private prison industry. Issue-specific privatization laws also have been enacted and typically reflect policy concerns regarding such matters as nondiscrimination or public employee job security with respect to the outsourcing of services by public agencies.

In Florida in the 2011 session, a bill was passed attached to the budget which would privatize prisons. Due to its rather unorthodox procedure, the bill was overturned judicially as being unconstitutional. In this session, two bills are being introduced to privatize prisons. One concern has been the lack of transparency. Also, some legislators are concerned that privatization laws are being proposed without research as to any savings to the state. The Florida rules committee introduced a bill during the session which says that privatization of services can be kept secret until contracts are signed.

Water Privatization –

 submitted by Beverly Sidenstick

There are two proposals in the legislature which may help us to decide whether certain functions of water management should be privatized.

The first example is muddied because we have many quasi-governmental organizations involved. The Tampa Bay Water Authority (TBA) is one. It includes Pinellas and Hillsborough Co. and many of the cities in both counties. They took over the well fields and sewage treatment facilities and are governed by a board selected by the various governments involved. They get funds from selling their services and by grants from the Water Management District (WMD). They have introduced a bill in the Legislature to give them the right to sell “reuse water” from their sewage treatment plant to private users (HB 639).

These consist at the moment of residents in these counties on lines built for lawn watering by the WMD. They have extra water and want to sell it on the market. It is currently being released into Tampa bay to satisfy minimum flow requirements, set by the District to preserve the sea life in the bay. It is a nursery for the Gulf. Many fish lay their eggs here and the young fish grow until they can survive in the saltier, predator-filled gulf.

In Charlotte Harbor where the Caloosahatchee performs much the same service, its fresh water flow was cut off (for a different reason) and many shellfish and game fish disappeared from its waters. The river became filled with blue green algae and the fish that were left are unfit for human consumption. In fact the water was so toxic swimming and some boating were prohibited.

Should this water continue to be used to protect the environment? Should the WMD have to pay for it? Where would they get their money? Their budget was just cut by 25% by the Governor.

The second example is a bill introduced as HB 1103. It would change the definition of Mean high sea level to a much lower level. This would in effect give the beaches which are now owned by the state ,and also many wetlands and submerged waters, to the adjacent landowners. Public access to many beaches would be removed and many wetlands, now protected by the state, would be up for development.

DCF as a Case Study

–¬†submitted by Lillian Lima

Privatization: The Florida Department of Children and Families as a Case Study It has been over a decade ago that Florida began turning its child welfare program over to private contractors instead of state workers. And according to AP/WPEC-CBS12.COM (CBS, channel 12), despite spending a half billion dollars a year, the Department of Children and Families does not have a standardized system for evaluating in most areas of its 20 child welfare contractors. This lack of standardization makes it impossible to prove that the 40,000 children in the system are being helped. Nor can the state show with confidence which contractors are performing well, adequately or poorly.

Prison Privatization

– submitted by Nancy Futch

The rapid expansion of prison privatization as a solution to reduce prison overcrowding, the capitol expense of building new prisons, and the cost of prison operations is worthy of investigation.

Advocates of privatizing

correctional services state that private prisons can achieve savings over public prisons by purchasing in bulk, eliminating overtime and employee benefits, and reducing the red tape. Opponents of privatizing prison services argue that a true and accurate comparison between public and private costs and services is difficult and complex, and does not provide a compelling argument for privatizing prison services. Lack of oversight and accountability, political posturing to affect public policy which increases incarcerations, preying on the voiceless (juveniles, mentally ill, immigrants), and increasing profits by cost-cutting measures that affect the welfare of prisoners and staff while neglecting rehabilitation and lowering recidivism are areas of concern. It is well documented that the only clear incentive to privatize prisons is to cut costs. Government contracting out the supervision, housing, and caring for those it imprisons to a for-profit industry that grossed 5 billion dollars in 2011 is cause for intense scrutiny.

Education Privatization

– submitted by Connie Prince

Our Polk County school district is among the top 40 largest in the nation. We are the 8th largest district in Florida. There are 160 campuses that include 24 charter schools. With a general fund budget of 732.5 million dollars, for-profit education management organizations will continue to be interested in privatization of our schools. The LWV privatization of education study was compiled in 2007. The information is limited because most of the operations are proprietary in a private company leading to a lack of transparency. The conclusion reached at that time was that there was still no evidence that a private company can operate a public school more efficiently or with a better outcome than more traditional schools. However, with the financial hardships the school districts are facing, there will be a need for more public-private partnerships. These may include food, transportation, planned curriculum and facilities. Walter G. Ambrey, a school administrator for Baltimore City Schools, shared several lessons learned in what he called a fairly good experience. One was to establish performance objectives with accountability measurements in place. Another, negotiate terms for severance and renegotiation upfront. He suggested a Chief Financial Officer representing the school district to monitor progress and funding. Last, but perhaps what we need to consider first, is the importance of having the support of the entire school community and teacher’s union before proceeding with caution.

Strategies for Best Practice

Executive Summary

– submitted by Joan Verrett

Privatizing a government service is a complex undertaking that requires a major commitment of resources. It involves careful definition of the goals to be achieved, and assurance that all efficiencies have been implemented with the existing service model. For services such as utilities, transportation or parks it needs to be clear who owns and maintains the public facilities, infrastructure and assets. For provision of human services involving children, sensitive or vulnerable clients, it must be assured that this information is protected. Evaluation of the service “market place” must occur to assure a competitive bidding environment expert contract negotiation and a thorough understanding of the potential impacts to service customers. Most importantly, the process requires transparency, oversight and ongoing communication with stakeholders to understand their concerns about privatization, because, in the end, the public bears the success or failure of privatization.

The Public Policy Debate

The purpose of this article is to provide a description of the evolution of the public policy known as “Privatization.” Privatization is a movement to deregulate private industry and transfer many government services, assets and functions to the private sector.

Claims and Concerns

Those promoting privatization claim that:

  • the private sector can provide increased efficiency, better quality and more innovation in services than the government;
  • a smaller government will reduce costs to the taxpayer; and
  • less regulation will provide a better environment for business, thus creating more jobs.

Those concerned about privatization suggest the following:

  • Profits: The mandate to make a profit will endanger public safety and reduce services available to the general public.
  • Costs: There will be increased costs to consumers.
  • Transparency and Accountability: Private companies will lack transparency, adequate oversight and accountability.
  • Corruption: There will be increased corruption between government and for-profit, private companies.
  • National Defense: Privatizing sectors such as ports, utilities and defense can result in foreign control and will put the country at risk in the event of war.
  • Inequality: The scale of privatized programs will result in chronic high unemployment, low wages and abusive labor practices, leading to growing inequality between the wealthy and poor.

Larger than the United States

The privatization movement is an international movement. Outside the United States, prominent divestitures of government assets have included Russia’s natural gas (Gazprom), Bolivia’s municipal water system in Cochabamba and the United Kingdom’s British Rail. Inside the United States, privatization has taken the form of deregulation, e.g., the deregulation of the financial services industry; redistribution of the taxes “burden,” e.g., efforts to reduce individual taxes on capital gains and inheritances, and reductions of corporate taxes; and privatization, the shifting of government programs to the private sector, e.g., the prisons and highways.

History

In the 1970s, disillusioned with the Progressive Era vision, leadership in the increasingly global private sector became more active, asserting that burgeoning tax rates and government regulations of industry were inhibiting free trade. Efforts were launched to dismantle many Progressive programs such as restrictions on financial lending, elimination of worker’s compensation, elimination of control over food and environmental safety, and a revamping of the tax system by eliminating progressive taxes and replacing it with a flat tax.

Competing Theories

Milton Friedman: The intellectual inspiration behind the public policies to privatize in the United States has come from the Public Choice and Property Rights schools of thought. Prominent leaders advocating these theories include Milton Friedman, the Chicago School of Economics, and Fredrick Von Hayek whose book, Road to Serfdom, warned of the growing welfare state. The basic assumptions include:

  • Democratic political systems have inherent tendencies toward government growth and excessive budgets.
  • Expenditure growth is due to self-interested coalitions of voters, politicians, and bureaucrats.
  • Public enterprises necessarily perform less efficiently than private enterprises.
  • The more individuals stand to gain from tending to their property, the better it will be tended.

John Maynard Keynes: The dominant economic theory after WWII was that of John Maynard Keynes. Keynes believed that to break a depression, the government needed to stimulate demand. It was necessary to get money into the hands of consumers to jumpstart growth. Businesses would not borrow and build if no demand was in sight, no matter how low the interest rates might go. Keynesian theories were later refuted by economist Milton Friedman and this dispute is at the core of the ongoing debate regarding how to break the current recession/depression.

Privatization in Practice

The key strategies as to how to downsize government and transfer programs to the private sector are described as:

  • Privatization by attrition – Cessation of public programs and disengagement of government from specific kinds of responsibilities. Example might be the U.S. postal system.
  • Transfer of assets – Direct sale or lease of public land, infrastructure, and enterprises. Examples might be federal and state parks, state-owned liquor stores and the proposed privatization of public libraries.
  • Contracting out (public/private partnerships) or vouchers – Instead of directly producing some service, the government may finance private services, for example through contracting out or vouchers. Examples might be charter schools, prisons.
  • Deregulation – Deregulation of entry into activities previously treated as public monopolies. Examples might be utilities, water, waste management, air traffic control and ports.

 

 

Role of Government

The public agenda of privatization requires a close examination of the proper relationship between government, business and civil society. What should the role of government be in protecting the environment, helping the poor, defending the nation, providing justice, ensuring democracy, protecting public health, ensuring public safety, providing education, promoting a thriving economy, and ensuring safe work environments and a living wage? Our country must seek a pragmatic balance between social and economic returns.
Nora Leech, LWVUS Committee Member

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