Privatization Ideology

The blazingly obvious truth about privatization is that in some cases, it leads to better services and lower costs; in other cases, it doesn't.
by | November 3, 2010
 

Back in 2008, the U.S. Senate voted to privatize the operation of the Senate restaurant, which was not only losing money at an alarming clip -- roughly $2 million a year -- but also serving lousy food. As the joke went at the time, the food was bad but at least the portions were small.

The move to privatize caused anguish for the Democratic majority at the time. Democratic Sen. Robert Menendez of New Jersey argued against contracting out, telling the Washington Post that "you cannot stand on the Senate floor and condemn the privatization of workers, and then turn around and privatize the workers here in the Senate and leave them out on their own." California Democratic Sen. Dianne Feinstein said, "It's clearly not the sort of thing I ran for the Senate to do."

To her credit, Feinstein opted for privatizing the restaurant rather than watching taxpayers subsidize a substandard operation. But for many, the decision to outsource seemed to be the moral equivalent of an attack on government, an admission that government isn't any good at anything.

On the flip side, there are some who seem eager to privative at all costs.

During the occupation of Iraq, the Bush administration appeared content to drive the majority of projects through hastily arranged contracts with private providers, many of them on a no-bid basis. A recent article in the Los Angeles Times notes the "legacy of waste" associated with this approach. This assessment is largely based on the findings of Stuart Bowen, the special inspector general for Iraq, whose job it was to review these contracts. In many cases, these contracts turned into costly white elephants, like the $40 million spent on a prison that has never been opened. "Billions of dollars have already been spent and billions have been wasted," Bowen said.

Ideology often serves as an impediment to good decision making. Why can't we simply agree up front to the blazingly obvious truth about privatization: In some cases, it leads to better services and lower costs; in other cases, it doesn't.

The political embrace of preconceived positions regarding government and markets simply doesn't help. Clinging to the notion that a government-run restaurant is inherently better (or worse) than a privately-run restaurant is ridiculous. The proof really is in the pudding -- that is, outsourcing decisions are best judged by their outputs and costs.

Once we get past the ideology, we can focus on what really matters: the results. We can look at the evidence and start to see the conditions that make successful privatization more likely. Is there an established private market for this service? Are the deliverables relatively straightforward to measure? Is there good data about internal costs that allows for a meaningful comparison of in-house and outsourced services?

There is evidence that when the conditions are right, outsourcing can be a great way to deliver public services for less, in areas ranging from fleet maintenance to janitorial services, from wastewater treatment to street sweeping. Acknowledging this isn't the moral equivalent of attacking democratic government.

There is also evidence that outsourcings can go awry. Corrupt bidding practices can lead to problems. Large, complex outsourcings, as with IT systems and the like, depend on highly skilled contract administration, and do not always end well. Acknowledging this isn't the moral equivalent of attacking the free enterprise system.

Nowhere is the confusion of ideology vs. execution more apparent than in the debates over school choice and charter schools. The conversation is dominated with those who hold a strong ideological position one way or the other. What's been left out is a serious conversation about what it takes to successfully move from a monopolistic approach to the delivery of public education to one that involves choice for parents and competition among providers.

A wonderful article in National Affairs by Frederic Hess tackles this question head on. Hess notes that school choice advocates "focus on selling the appealing promise that choice "works" rather than on the more arduous task of tackling K-12 education as a serious deregulatory project." Hess continues:

As a result, crucial questions have received scant attention -- including regulatory and licensure chokepoints; the tendency of successful non-profit charter organizations to grow slowly; the dearth of information regarding the quality of providers; a third-party financing system that gives consumers no reason to weigh cost considerations; when and why private schools add new capacity in response to voucher programs; and the way in which statutes and collective-bargaining agreements limit how school districts respond to competition.

These are, of course, the questions that will determine how well charter schools and other forms of school choice will work in practice. These are the nuts and bolts issues that will determine the results.

Ideology in the absence of sound execution won't work. Indeed, ideology can blind us to what needs to be done to produce maximum public value with scarce resources. When it comes to privatization, the results are the only thing that matters.

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