The Public Good Newsfeed – December 1, 2016: The Perils of Privatization

placeholderA selection of recent news stories with an ILSR insight into “The Public Good.”

Stories in this Newsfeed:

The Privatization of Everything |  Privatizing Education | Privatizing the Oceans

Privatizing Municipal ServicesA Resource Guide to Privatization

The outcome of the Presidential election will make the word “privatization” will become central to our political conversations. We should be mindful that the privatization movement did not start with Donald Trump, nor has it solely been a Republican initiative. For those wanting to familiarize themselves with the already pervasive nature of that movement and its problematic impact, we offer a few choice readings.

29The Privatization of Everything

Talking Points Memo (TPM) has an excellent primer on privatization. The Hidden History of the Privatization of Everything consists of three essays by experts in the field.

Donald Cohen, founder and Executive Director of In the Public Interest, offers a sobering review of the rapid growth of privatization from an idea to a movement to dominance.

He notes:

  • Private prisons didn’t exist thirty years ago. Today, publicly traded, billion-dollar corporations are key players in prisons and immigrant detention. Privatized immigration facilities now house over two-thirds of all detained immigrants.
  • Twenty-five years ago charter schools did not exist. Today, nearly 3 million children attend charters, and large corporate chains and billionaires are funding the rapid growth of privatized, publicly funded charters.
  • Former defense contractors, IT corporations and publicly traded corporations are running welfare, food assistance, and other safety net systems in many states across the country.
  • Today the federal government employs more than three times as many contract workers as government workers,

Journalist David Dayen, reports on the true cost of private prisons:

“Actual housing of convicts in prisons and jails is only one part–perhaps the smallest part–of the overall industry revenue stream. Private companies seek to pull profits from the moment someone is suspected of a crime to the final day they meet with a parole officer. Private industry transports prisoners, operates prison bank accounts, sells prescription drugs, prepares inmate food, and manages health care, prison phone and computer time. And that’s just the start. The money comes from the taxpayer, in state and federal contracts, and the suspects, inmates, and parolees themselves, in fees and add-ons. Those caught in the web represent what marketers would call the ultimate “captive audience”: there is no way to shop around for a better deal.”

… private prison companies can prosper whether the incarceration rate expands or lowers, by controlling the other ends of the pipeline, from pre-trial supervision to post-prison re-entry. The greatest source of profits now comes from federal contracts to detain, transfer, and deport undocumented immigrants. The more toxic the immigration debate becomes, the more advantage for-profit corporations take.”

Journalist Erika Eichelberger describes how privatization circumscribes public control and actions.

“In 2006, the city leased four major parking garages to a Morgan Stanley-led firm for $563 million. In 2009, Morgan Stanley sued the city for threatening its profits by allowing a nearby building to open a public garage. Chicago had to pay $62 million to settle.

In 2008, Mayor Daley sold off 36,000 city parking meters to another Morgan Stanley-backed company, with little public input. It was later revealed that the deal was undervalued by $1 billion. Meter rates skyrocketed from $3 an hour to $6.50 an hour. And the firm charged the city millions for violating the contract by putting certain meters out of use for street repairs, parades, and festivals, and for giving free parking permits to people with disabilities…

Between 1994 and 2006, 43 highways became so-called public-private partnerships, according to a 2009 report by the Frontier Group. Many toll road contracts include provisions discouraging governments from improving or expanding nearby public routes in order to funnel traffic—money—to the privatized road…

Virginia’s 2006 contract with two private firms to build toll lanes on the Capital Beltway requires the state to compensate the companies whenever carpools exceed 24 percent of traffic in carpool lanes for the next forty years—‘or until the builders make $100 million in profits.’

The state of Indiana had to reimburse the private company operating the Indiana Toll Road $447,000 in 2008 because the state waived the tolls of people who had to evacuate during severe flooding. The company also refused to allow state troopers to close the toll road during a snowstorm because it would hurt profits…

Some 700 jurisdictions across the country have elected to privatize transportation policy on the traffic enforcement side as well, in the form of red light cameras. These are the cameras mounted at intersections that take a photo of your license plate when you run a red light. The company will then issue the ticket, usually after approval by local authorities.

Some of these firms require cities to approve a fixed percentage of all tickets in order to guarantee the company a certain level of income, thereby eliminating local judicial discretion. Some companies impose financial penalties on municipalities that make safety improvements at intersections if those improvements could affect the volume of tickets a company can issue…

‘When you sell off public assets to private parties basically what you’ve done is absolutely confined the ability of the public sector to dictate the terms by which public good is determined,’ Mac McCarthy, president of the Lincoln Institute for Land says. ‘[Private] contract becomes law.’”

Milpitas School District Solar Carports 2Privatizing Education

Back in 2011 Diane Ravitch, former U.S. Assistant Secretary of Education, and President of The Network for Public Education, in a terrific piece in the Saturday Evening Post, declared,  “The media tell you that other nations have higher test scores than ours and that they are shooting past us in the race for global competitiveness. The pundits say it’s because our public schools are overrun with incompetent, lazy teachers who can’t be fired and have a soft job for life. Don’t believe it. It’s not true.”

She noted that these complaints have been repeated over the last 60 years, a time during which the United States became the world’s most innovative, technologically advanced and economically powerful and prosperous nation.  “Is it possible that we succeeded not because of test scores but because our society encourages something more important than test scores: the freedom to create, innovate, imagine, and think differently?”

Ravitch addresses the crucial publicness of public schools.

“Since the 1840s, our public schools have been a bulwark of our democratic society. Over time, they have opened their doors to every student in the community regardless of that student’s race, religion, language, disability, economic standing, or origin…

With this openness, there is a price to be paid: Our public school teachers have one of the most difficult jobs in society. Their classes include children who are recent immigrants, many of whom don’t speak or read English; they include children who have social, emotional, mental, and physical disabilities; they include children who live in desperate poverty….

Our schools are now expected to educate all children, whatever their condition. In 1975, Congress mandated special education for children with disabilities. It promised to pay 40 percent of the cost but has never followed through…”

“(Later) (i)nstead of sending the vast sums of money that schools needed to make a dent in its goal, Congress simply sent testing mandates to every school. It required that every child in every school must reach proficiency by 2014—or the schools would be subject to sanctions. If a school failed to make progress over five years, it might be closed or privatized or handed over to the state authorities or turned into a charter school. There was no evidence for the efficacy of any of these strategies, but that didn’t matter.

Setting an impossible goal, providing inadequate resources to pursue that goal, and then firing educators and closing schools for failing to reach it is cruel and unusual punishment…

Charter schools on average do not produce better academic results than regular public schools. As charters proliferate, regular public schools lose students and funding, and many charters try to avoid the students who are most costly and difficult to educate…

Piece by piece, our entire public education system is being redesigned in the service of increasing scores on standardized tests of basic skills. That’s not good policy, and it won’t improve education. Twelve years of rewarding children for picking the right answer on multiple-choice tests is bad education. It will penalize the creativity, innovativeness, and imaginativeness that has made this country great.”

In late 2016 AlterNet, one of the most widely read sources of information from a progressive perspective, examined the role of charter schools more deeply in an eBook, Who Controls Our Schools?

Many will be surprised to discover, that charter schools were first proposed by the head of a major teachers union.  Albert Shanker viewed them as vehicles that would allow liberate teachers from stifling bureaucratic rules and allow them the freedom to experiment with different education strategies.  Lessons learned would be used to improve public schools.

But soon the charter movement became a vehicle, not to improve the public school system, but to hobble and eventually eliminate it. Conservatives, whose proposal for education vouchers, had been consistently rejected by voters, viewed charters as a way of achieving the same goal:  the privatization of public education. The Walton Family Foundation, for example, which initially supported a school voucher movement, has spent more than $1.3 billion on K-12 education and boasts it has given seed funding to one-in-four charter schools.

As charters expanded investors became interested in this huge new potentially lucrative sector. When media mogul Rupert Murdoch announced in 2010 that News Corp. planned to enter the for-profit K-12 education market, he called it “a $500 billion sector in the U.S. alone that is waiting desperately to be transformed.” (Today that figure is more than $600 billion.)

Democrats as well as Republicans jumped aboard the charter train.  When Bill Clinton’s Presidency began, the U.S. had a single charter school. When it ended, there were more than 2,000. The Bush Administration made state acceptance of charters a requirement for receiving billions of dollars in education federal funds. The Obama administration reinforced that policy.

In 2014 three million students attended 6,700 charter schools, an increase of 70 percent since 2009. Forty percent were part of corporate chains or franchises.

Who Controls Our Schools? also examines the impact of privatization on the long American tradition of local control of education and on minority and poor communities.

“New Orleans, Detroit, New York, Chicago, Columbus, St. Louis, Pittsburgh, the District of Columbia, Philadelphia, Milwaukee, Baltimore, and Houston have all seen elected school boards upended by privatization. Collectively, these cit­ies experienced the forced closure of more than seven hundred public schools and replacement by charters, according to a May 2014 report by Journey for Justice Alliance, a nationwide coalition of community groups as well as youth and parent organizations in twenty-one cities. ‘America’s predominantly black and Latino communities are expe­riencing an epidemic of public school closures,’ their report begins. ‘We need the American people to know that the public education sys­tems in our communities are dying,’ their report continues.”

28Privatizing the Oceans

Award winning investigative reporter Lee Van der Voo has written a blockbuster of a book about something most people are unaware of:  the privatization of our oceans.

Fish Market: Inside the Big Money Battle for the Ocean & Your Dinner Plate notes the rise of a cap-and-trade arrangement for fish.  To reduce overfishing, governments create caps on the amount of fish that can be caught.  Then they dole out the rights to fish them among qualifying entities.

“(O)nce those rights are awarded by the government, whoever holds that slice of the pie holds exclusive access to a corresponding percentage of fish. Those rights are privately controlled after that… Now the rights to catch fish are private market assets that trade hotter in places like Alaska than brick-and-mortar real estate.

The private property rights attending catch shares had locked many fishermen and even whole communities out of the oceans. Catch shares created powerful landlords on water and as those landlords grew more powerful, catch shares were converting fishermen from proud family-business sorts into sharecroppers who were leasing their access to the sea from wealthy and increasingly corporate power brokers.”

In a review of Van der Voo’s book, Larry Getlen comments:

“Regulators would cap the number of fish that could be caught, but the right to fish then would be doled out, like property, to the people that had historically fished them…

“Those who own the rights to fish a certain area can rent or sell them like feudal landlords, in perpetuity. That means fishermen, who used to freely fish certain areas, now have to rent those same areas from absentee landlords.

“The bizarre setup means owners of fishing boats have become the equivalent of Uber drivers for share owners who take anywhere from 50 percent to 75 percent of the profit.”

Owners of less than 20 percent of a boat are required to be aboard any vessel catching their fish, but are not required to fish. This has led to boat owners offering amenities such as “big screen and satellite TVs, massive DVD collections, quality grub and staterooms” to attract share owners aboard to relax while the owner and his crew do the back-breaking work of fishing.”

Getlen continues, “The town of St. George, off the Bering Sea near Alaska, was long home to some of the most robust pollock fishing in the country. But due to a fishing rights management scheme called “catch shares,” the town has no rights to fish its own waters and regularly watches their former industry literally pass them by.

“Every year, the industry takes about $2 billion in gains out of this fish resource on the Bering Sea,” St. George Mayor Pat Pletnikoff tells Lee van der Voo in “The Fish Market.” “Not one plug nickel sticks to St. George.”

27Privatizing Municipal Services

“Privatization was supposed to yield greater efficiency due to competitive pressures on private providers to produce quality service at a lower cost. However, after 40 years of experience, this result has not been born out,” writes Cornell Professor Mildred E. Warner.

Warner, an expert on local government and public management maintains:

“One of the keys to cost savings from privatization is competition.  But competitive markets in most public services do not exist. So privatization merely substitutes a private monopoly for a public one. Private providers will reduce service quality to enhance profits – especially if competition is not present.

Contracting out to low competitive markets requires local governments spend so much time managing the market that it cuts into their ability to monitor.”

Increasingly cities are revisiting their original infatuation with privatization.  A 2009 survey by the International City Management Association, found that from 2002 to 2007 cities re-municipalized services as often as they contracted them out.  The reasons? Poor service quality, lack of cost savings, improvements in public delivery, and problems with monitoring.  Another factor was the local political support for bringing the work back in-house. It turns out citizens prefer local services to be locally controlled and publicly delivered.

As Warner notes, cities contract with other governments as well as with for profit corporations. However, bringing the function back into the city is 60 percent more likely when the contract is with a for profit partner.

Inter-municipal cooperation is growing in popularity. Indeed, according to Warner, inter-municipal contracting is now larger than for profit contracting. Local governments view cooperation as an effective way to gain economies of scale, better coordinate services in a region and still keep public control.  Rather than being focused on competition as the basis for efficiency, inter-municipal contracting has successfully built on the positive benefits of cooperation.

In an article in the New York Times Elliot Sclar, a Professor of Urban Planning at Columbia University and an expert of privatization, notes that ideology often drives a city’s decision to privatize but in the private sector, ideology rarely plays a role in determining “make or buy” decisions.

“Three factors drive the decision: the number of interactions required between the service supplier and the purchasing organization; the ability of the purchasing organization to judge the quality of the product; and the nature of control over the physical assets and people involved in delivering the goods.

The general rule of thumb is that when the number of interactions is high, quality is not easily determined and control over assets is required, you should keep the function in-house. If the reverse is true, you can outsource.

That is why, for example, it makes perfect sense to hire a contractor to paint city hall every few years but why attempting to privatize something as complex as New York City’s employee record keeping system has proved to be a disaster.

Why is this the case? Because success or failure is connected to the complexity of the organizational relationship between buyer and seller and the amount of information that the public buyer continually needs to assess in determining how the project is progressing. These two factors explain virtually all of the reported failures of privatization for functions like prison medical services or highway construction.”

30A Resource Guide to Privatization

Since opening its doors 8 years ago, the non-profit group, In the Public Interest has established itself as the go-to organization for information about privatization.  Its web site contains a treasure trove of current news and short and long reports on the whole spectrum of privatization-related issues and the experience of privatization in various sectors:  education, prisons, water, infrastructure, childcare, transportation, etc.

In 2014 the organization released a resource guide that allows first timers and old timers to easily navigate its rapidly expanding library.  At the time there were over 35 reports available.  I imagine by now there could easily be 50. The two most recent, published in the fall of 2016, are How Privatization Increases Inequality and The Banks That Finance Private Prison Companies.

A sampling of the titles in their library will give you a taste of the information available.

Closing the Books: How Government Contractors Hide Public Records

The Decision to Contract Out: Understanding the Full Economic and Social Impacts  

Shift: How Taxpayers Began Reclaiming Control of their Public Services

Out of Control: The Coast-to-Coast Failures of Outsourcing Public Services to For-Profit Corporations

I particularly like the groups’s ability to synthesize dozens, if not hundreds, of reports into easily digestible, sometimes bite-sized information sheets. A prime example is their brief, and I do mean brief publication, Privatization Myths Debunked, which exposes the fallacies of the principal arguments in favor of privatization.

Myth #1:  Privatization saves money

The Truth: Privatization often raises costs for the public and governments

Myth #4:  Privatization allows governmental entities more administrative flexibility.

The Truth:  Privatization requires substantial administrative resources for monitoring and oversight.

Myth #6:  If anything goes wrong, the government can easily fire the contractor or adjust the contract.

The Truth:  Reversing privatization involves huge costs and service interruptions.

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David Morris

David Morris is co-founder of the Institute for Local Self-Reliance and currently ILSR's distinguished fellow. His five non-fiction books range from an analysis of Chilean development to the future of electric power to the transformation of cities and neighborhoods.  For 14 years he was a regular columnist for the Saint Paul Pioneer Press. His essays on public policy have appeared in the New York TimesWall Street Journal, Washington PostSalonAlternetCommon Dreams, and the Huffington Post.