Privatization: Schemes for Taking Money from the Poor and Giving It to the Rich

One of the hallmarks of civilization has been the ability to organize into societies in which government and private enterprise coexist and provide goods and services to the population in an efficient manner.  Products consistent with a profit motive where provided by private entities; goods and services that were required to be universally available were often the responsibility of the government.  The conclusion as to which services were appropriate for government provenance has changed over time as situations and attitudes change.  The trauma of two world wars and the Great Depression resulted in an elevated role for government in which state ownership of production became more common and a series of social protections were put in place to protect people from severe disruption of their lives by misfortunes like unemployment or illness.  Both proponents and critics—one proudly and the other disdainfully—refer to this as a “welfare state.”

For the last half century, a counterrevolution has been taking place in which arguments have been forcefully made that private enterprise can always produce goods and services more efficiently than government.  Consequently, more and more responsibility for goods and services has been handed over to for-profit organizations.  Whether or not greater efficiency is attained is arguable and situation dependent; what is not arguable is that privatization increases income inequality, and it changes the terms of the contract between a society and its members.

Consider the need for a new road or bridge.  If the government takes responsibility for its building then it can assess taxes to cover the expense.  Taxes are generally progressive, meaning that the wealthier will pay a greater share of the cost than the non-wealthy.  There is the further advantage of being able spread the cost over the entire society, not just those who might need to use it.  If the bridge or road is built by a private company it must recover the costs of construction, maintenance, and profit from users.  It might seem that charging a toll to be paid by the users of the facility is a fair way to go, but the net result is that the wealthy receive access to the facility at a fee that is means nothing to them, while the less wealthy may end up with a cost they would consider rather exorbitant.

With privatization, we have essentially replaced a system where taxes fall most heavily on the rich with one in which taxes fall most heavily on the poor.  Since what is privatized is generally a critical service, the private operators can rest assured that if they run into trouble, the public sector will have to come to their rescue.  One might think of privatization as plutocracy’s greatest triumph.

The requirement that a profit must be made is an inherent inefficiency introduced by privatization.  To cover that cost and maintain the aura of efficiency, either payroll or services must be cut.  Not only have we instituted a regressive tax, we have given license to drive down wages.  Wage earners will generally suffer under privatization while managers will earn much more than government-employed managers.

Privatization is moving into areas in which it has no business.  This is plutocracy’s greatest danger.  For-profit colleges have been active at the college level for a number of years.  The business plan seems to be recruitment of economically and/or academically deficient students, convincing them to take out government loans to cover outrageous fees that are often many times higher than those at public schools, and, for the few that graduate, providing programs that rarely lead to jobs with sufficient income to pay off their debts.  The federal government is just now trying to fight back against these predatory practices, but is being stymied by the plutocrats.  For-profit schemes are now making inroads into the K-12 arena.  The scam is different, but the potential for harm is even greater.

The most incredible trend developing is the entry of for-profit companies into something called “offender-funded justice.”  For example, governments are beginning to offload responsibility for probation supervision and collection of fines to private companies rather than use taxes to cover the costs.  There is no efficiency argument to be made here; costs that once were covered by general taxation are being placed on those who fall into the hands of our justice system.  Those on probation must fulfill the terms of their probation plus pay a fee to the probation company.  The net result is that companies now make a profit from the most disadvantaged in our communities and they can use the threat of imprisonment to aid in collecting their fees.

More insidious in the long run is the unraveling of the social contract. This was what troubled Tony Judt the most as he wrote Ill Fares the Land just before his death.  If citizens receive their essential services not from the state, and the society it represents, of what value is society to the citizen?

“…a social service provided by a private company does not present itself as a collective good to which all citizens have a right.  Unsurprisingly, there has been a sharp falling off in the number of people claiming benefits and services to which they are legally entitled.”

“The result is an eviscerated society.  from the point of view of the person at the bottom—seeking unemployment pay, medical attention, social benefits or other officially mandated services—it is no longer to the state, the administration or the government that he or she instinctively turns.  The service or benefit in question is now often ‘delivered’ by a private intermediary.  As a consequence, the thick mesh of social interactions and public goods has been reduced to a minimum, with nothing except authority and obedience binding the citizen to the state.”

Judt provides an interesting historical analogy for our current policy.

“If your tax returns are audited in the US today, this is because the government has decided to investigate you; but the investigation itself will very likely be conducted by a private company.”

“Governments, in short, now increasingly farm out their responsibilities to private firms that offer to administer them better than the state and at a savings.  In the eighteenth century this was referred to as tax farming.”

In prerevolutionary France, the monarchy accepted a lower return in upfront funds and allowed the private company to keep whatever it could collect.  Its profit was the excess over the upfront payment to the king.

“After the fall of the monarchy in France, it was widely conceded that tax farming is absurdly inefficient.  In the first place it discredits the state, represented in the popular mind by a grasping private profiteer.  Secondly, it generates considerably less revenue than a well-administered system of government collection, if only because of the profit margin accruing to the private collector.  And thirdly, you get disgruntled taxpayers.”

“….the problem we have created for ourselves is essentially comparable to that which faced the ancien régime.”

Judt turns to Edmund Burke to bring his analogy to a conclusion.

“Any society, he wrote in Reflections on the Revolution in France, which destroys the fabric of its state, must soon be ‘disconnected into the dust and powder if individuality’.  By eviscerating public services and reducing them to a network of farmed-out private providers, we have begun to dismantle the fabric of the state.  As for the dust and powder of individuality: it resembles nothing so much as Hobbes’s war of all against all, in which life for many people has once again become solitary, poor and more than a little nasty.”

Those among us who occasionally predict our demise as a nation because they fear we are becoming like modern France have it all wrong.  Our current plutocracy more nearly resembles the soon-to-be-dead monarchy of the eighteenth century.