WE NEED SOLID GOVERNMENT INFRASTRUCTURE Part 2

Note: If you find my posts too long or too dense to read on occasion, please just read the bolded portions. They present the key points I’m making and the most important information I’m sharing.

Governments are critical components of our societal infrastructure. Effective governments are needed to deliver the services, supports, and public amenities that Americans want and need. For 40 years, small government advocates – led by Republicans but with the acquiescence or assistance of many Democrats – have successfully shrunk and weakened government infrastructure and capacity. (My previous post focused on the targeting of public employees.)

One reason for the attacks on government infrastructure has been to privatize government functions so the private sector can make profits by performing work previously done by public employees. This has always been justified by the claim that the private sector will do things more efficiently and save taxpayers money. However, numerous real-life experiences have shown that this is often not the case.

The Internal Revenue Service (IRS), the nation’s tax collector, is a classic example of the harm that results from privatizing and weakening public infrastructure. In 2004, President G. W. Bush privatized the efforts to collect hundreds of billions of dollars owed to the IRS, claiming the private sector would do a better job. The private collectors brought in $86 million from the easy to win cases. The IRS then brought the work back in-house and its agents collected about $140 million in just a few months from more difficult cases that the private collectors had skipped over. This experience demonstrated that privatizing the collection of owed taxes was inefficient and a waste of money. [1]

Nonetheless, the Republicans persisted in slashing the budget, staff, and enforcement capacity of the IRS. From 2010 to 2018, the Republicans slashed the IRS’s budget by 20% and its staff by 22%. The number of audits of taxpayers with over $1 million in income dropped by 72% and money collected from audits dropped by 40%. Now, President Biden is proposing increasing funding for the IRS and its enforcement activities, which will more than pay for itself in increased tax collections. (See my previous post on the IRS for more details.)

Other examples of privatization that have been problematic include:

  • Privatized prisons and detention centers are less safe, less secure, and more costly than government-run facilities. (See my previous posts on this here and here.)
  • Disaster response to hurricanes Irma and Maria in Puerto Rico was privatized by the Federal Emergency Management Administration because of insufficient staff. The results were substantial delays in the delivery of critical supplies, cost overruns of $179 million, and another $50 million in questionable costs.
  • Paying bills, monitoring quality of care, and transmission of funds to states for Medicaid and Medicare have been privatized leading to a labyrinthian maze that is challenging to navigate when problems or questions arise.
  • Housing for refugees arriving at the Mexican border has been privatized resulting in an unresponsive amalgamation of contractor-run shelters.

With privatized services, quality problems and cost overruns are frequent, but it’s the government that gets blamed. A classic example is the problem with the Affordable Care Act (aka Obama Care) website rollout. The problems stemmed from the 62 contracts with private firms that were hired to build the website. The government’s failing, beyond perhaps the decision to privatize this work, was that it didn’t have the capacity to effectively manage this complex set of private contractors.

Good management and oversight of contractors requires time and skill, which costs money. Privatization deals rarely provide for this because the focus is on cutting costs. So, the government can end up with private contractors managing other contractors. Contractors also end up writing policies – that sometimes benefit themselves. Private employees under long-term contracts end up sitting in the same offices and doing the same work as government employees, often at significantly greater cost. Members of the public dealing with the government have no idea whether they are interacting with a government employee or a contractor, but if things don’t go well the government gets the blame.

The number and complexity of privatization arrangements and a lack of transparency about some of them (often very intentional) mean that the number of private, contracted personnel and their cost to taxpayers are impossible to accurately aggregate. The effectiveness and efficiency of their performance is also often impossible to determine.

Reversing the trend toward privatization will be difficult for multiple reasons, but partly because companies with federal contracts are active lobbyists and campaign contributors. A 2011 study found that of the 41 companies making the most in campaign contributions over the previous 20 years, 33 had federal contracts.

I encourage you to let your elected officials at all levels, particularly the federal and state levels, know that you support strong government infrastructure as an essential component of a well-functioning society. We need President Biden and Members of Congress to support the rebuilding of government infrastructure and capacity, and to oppose privatization of core government responsibilities. The importance of this has become particularly evident during the pandemic, when the capacity of government public health agencies was essential to keeping people safe, through everything from economic assistance to eviction moratoriums to the distribution of vaccines and personal protective equipment. As Bob Kutner wrote in a recent blog from The American Prospect, “Face it, the only way to keep relatively safe is to elect people to run the government who believe in the government, and who operate it competently and relatively free of corruption.” [2] In other words, the only way to have the effective government that we need is to have solid, well-run government infrastructure.

You can find contact information for your U.S. Representative at  http://www.house.gov/representatives/find/ and for your U.S. Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

You can email President Biden via http://www.whitehouse.gov/contact/submit-questions-and-comments or you can call the White House comment line at 202-456-1111 or the switchboard at 202-456-1414.

[1]      Kettl, D. F., & Glastris, P., 7/1/21, “Memo to AOC: Only you can save the government,” Washington Monthly (https://washingtonmonthly.com/magazine/july-august-2021/memo-to-aoc-only-you-can-fix-the-federal-government/) This blog post is primarily a summary of this article.

[2]      Kuttner, R., 7/2/21, “The Condo, the Inspector, the Market, and the Government,” Today on The American Prospect blog (http://americanprospect.activehosted.com/index.php?action=social&chash=61b4a64be663682e8cb037d9719ad8cd.839&s=6009966078bda0f5056f960a346ead8a)

WE NEED STRONG GOVERNMENT INFRASTRUCTURE

Note: If you find my posts too long or too dense to read on occasion, please just read the bolded portions. They present the key points I’m making and the most important information I’m sharing.

Governments are critical components of our societal infrastructure. Effective governments are needed to deliver the services, supports, and public amenities that Americans want and need. As I noted in my last post, an important reason that massive unemployment insurance fraud occurred during the pandemic was that government infrastructure wasn’t up to the task of effectively administering expanded benefits. State computer systems and personnel didn’t have the capacity to accurately enroll and pay the wave of new beneficiaries. And law enforcement lacked the capacity to identify and punish fraudulent applicants.

For 40 years, small government advocates – mostly Republicans but with the acquiescence or assistance of many Democrats – have successfully pushed to shrink government infrastructure and capacity. President Reagan (a Republican) asserted in 1980 that government was the problem and not the solution – a claim that went unanswered by Democrats. This marked the beginning of a concerted effort by Republicans to downsize the federal government – except for the Defense Department – in terms of number of personnel, regulatory capacity and responsibility, provision of a safety net, emergency response and public health capacity, scientific and policy analysis expertise and data, etc. President Clinton (a Democrat) in 1992 declared the end of the era of big government and of welfare as we’d known it – supporting and furthering the weakening of government infrastructure.

One component of this attack on government infrastructure has targeted public employees, both to reduce their numbers and to denigrate them. One reason for this has been to discredit government by claiming that its employees are inefficient, incompetent, and overpaid. Another reason has been to undermine unions, which today are strongest in the public sector given the very successful efforts by corporatists and oligarchs to undermine private sector unions. (The percentage of private sector workers represented by a union has fallen to 20% of what it was 60 years ago – from over 30% to under 7%.)

Federal civilian employment is a little over 2 million, roughly the same as it was in 1966, despite a quintupling of federal spending and a population that has grown by 68%. The government has added agencies in that time such as the Environmental Protection Agency, the Department of Homeland Security, and the Department of Energy. In these new agencies and others, the government’s roles and responsibilities have grown and have also become much more complex. Nonetheless, the number of federal employees has not grown to meet these needs. Moreover, under the Trump administration, employment at the Department of Labor declined 11%, 9% at the State Department, and 8% at the Education Department, although their workloads were not declining. Scientists were a particular target of the Trump administration. For example, the Agriculture Department had 50% of its research jobs vacant under Trump. [1]

To maintain the services that Americans want and the functions government must perform (such as tax collection) with a limited number of federal employees has required a dramatic increase in the number of consultants and contractors working for the government. This has become big business for many companies including some of the well-known consulting companies such as McKinsey and Booz Allen. Booz Allen now gets 96% of its revenue from federal government contracts.

There are now over twice as many private contractors working for the federal government as there are employees. The Government Accountability Office has warned for years that the extensive use of contractors was eroding the government’s ability to govern, including the making of important policy decisions. President Obama worked diligently to reduce the number of contractors, having noted that they are “often unaccountable and often less efficient than government workers.” His administration succeeded in reducing the ratio of contractors to employees from 3.38 to 2.34. Trump reversed this trend and the contractor workforce grew by about 1.4 million people in his four years as President.

A 2010 study by the Project on Government Oversight examined 35 government job categories and found that for 33 of them government employees were less expensive than private contractors even when federal fringe benefits were included. For one job category, contractors were almost five times more expensive.

As a result of the weakening of the federal government’s infrastructure and the extensive use of privatization and contractors, the rate of highly visible failures of government services as risen from 1.6 per year in the 1980s to 4.3 during the Trump administration.

My next post will more closely examine the privatization of government functions and its effects.

Note: In addition to personnel, computer systems are another essential component of government infrastructure. Many government computer systems, at the federal and state levels, are out-of-date, if not antiquated, due to a lack of investment over the last 40 years. As a result, many government computer systems can barely perform essential functions, are difficult to update, and are unable to share data with other systems. This is a story for another day and another post or two.

[1]      Kettl, D. F., & Glastris, P., 7/1/21, “Memo to AOC: Only you can save the government,” Washington Monthly (https://washingtonmonthly.com/magazine/july-august-2021/memo-to-aoc-only-you-can-fix-the-federal-government/) This blog post is primarily a summary of this article.

THE REST OF THE POST OFFICE STORY Part 2

The scandalous behavior of Louis DeJoy, the Trump administration’s new Postmaster General for the U.S. Postal Service (USPS), has gotten quite a bit of attention in the mainstream media, but there’s more to the story than they have been reporting. This post and my previous post present at least some of the rest of the story. (My previous post described DeJoy’s Friday night massacre of personnel and the role of Treasury Secretary Mnuchin, who obtained sweeping operational control over the USPS and unprecedented access to its information through negotiation of a $10 billion line of credit for the USPS from the Treasury. [1] [2] )

Despite the current characterization of the USPS has operating at a loss, the postal service wasn’t viewed as a profit-making business by our country’s founders or throughout most of its history. Moreover, Congress has put requirements and restrictions on it that mean it can’t be run like a business.

The USPS is a public good that supports our democracy, a civil society, and other economic activity, as roads and schools do; it shouldn’t be run like a business to make a profit. We don’t expect the military or the National Park Service to generate a profit, so why should we expect the USPS to generate a profit? Our country’s founders thought of the postal service as critical to ensuring that citizens of the new democracy were well informed and therefore believed it should, among other things, subsidize delivery of newspapers. According to the Postal Policy Act of 1958, the USPS provides an essential public service that promotes “social, cultural, intellectual, and commercial intercourse among the people of the United States”. The Act also states that the USPS is “clearly not a business enterprise conducted for profit.” [3]

However, in 1970, as the era of deregulation and privatization began under President Nixon, the Postal Reorganization Act made the USPS an independent federal agency (instead of a Cabinet agency like the Departments of Education or Defense) and required it to cover its costs. Nonetheless, the law limited the USPS’s ability to increase prices for its services, expected it to deliver mail to every household and business in America six days a week, and required it to keep postal rates the same across the whole country despite substantial differences in the costs of delivering mail in different areas. [4]

Since then, Republicans have been trying to privatize the USPS because it represents a large revenue stream, $71 billion a year, that they would like to see go to their friends and campaign contributors in the private sector. One strategy for doing this has been to undermine the USPS and make it look bad, to make it look like it’s poorly run, and to make it look like it’s operating at a deficit, in order to build an argument that privatizing it would make sense.

In 2006, in what many observers felt was an effort to make the USPS look financially unstable and therefore ripe for privatization, the Postal Accountability and Enforcement Act (PAEA) was passed. It required the USPS to pre-fund retiree health benefits far into the future, which no other federal agency or private business is required to do. Specifically, it required the USPS to pay $5 billion to $6 billion a year into a retiree health benefit fund from 2007 to 2017. This has made the USPS appear to be running a deficit, when, without these payments, the USPS would have reported operating surpluses from 2013 through 2018. [5]

The current slowing of mail service is just another tactic in the effort to make the USPS look bad. The resultant inability to deliver ballots or medicines in a timely fashion, not only makes it look bad, but also undermines its revenue because mailers and shippers are shifting their business to competing, private service providers. For example, the slowdown is forcing the Veterans’ Administration to use private shipping services to get medicines to patients in a timely fashion and Amazon is building up its in-house delivery capacity and its fleet of vehicles.

The USPS is prohibited by law from branching out into new business lines that could boost its revenue and its services to the public. Offering basic banking services is one example, for which there is historical precedent. From 1911 to 1967, the USPS offered savings accounts. In 1967, the Postal Savings System was terminated at the behest of private bankers who did not want its competition. Today, money orders are the only financial service offered by the USPS. [6]

Postal banking is now receiving renewed attention because there are sizable poor urban and rural areas where bank branches are scarce. In addition, private banks have a track record of charging high interest rates and fees to low-income account holders, as well as failing to provide equitable treatment in access to credit and other financial services. As a result, 9 million U.S. households are effectively excluded from banking services and are described as “unbanked”.

The payday lending business has emerged to fill this gap and has grown into a $90 billion business. However, its usurious interest rates and fees, and its business model of locking customers into a cycle of debt that it’s often difficult to escape from, have led to a search for more consumer-friendly alternatives. In 2014, the USPS’s Inspector General noted that the USPS could make profitable loans at a much lower costs to consumers than what payday lenders were and are providing.

In the presidential primaries, a number of the Democratic candidates proposed allowing the USPS to offer basic banking services and Senator Biden, the Democratic nominee for President, supports this policy proposal. It would make basic banking services more accessible and affordable, particularly for low-income households.

In the face of this revived interest in postal banking, which would help the finances of the USPS and benefit the public, Postmaster General DeJoy and Treasury Secretary Mnuchin have reportedly engaged in discussions with megabank JPMorgan Chase (JPMC) about putting its ATMs in post offices and giving JPMC the exclusive right to solicit banking business from postal customers. This is clearly a backdoor effort to eliminate the possibility of postal banking – competition private sector bankers and payday lenders vehemently oppose. (So much for the private sector’s belief in a free market and competition!) Moreover, this doesn’t address the issue of unbanked people because if they don’t have a bank account, they can’t use the ATM. JPMC has a particularly troubling track record in this regard as it has historically failed to provide branch services in low-income, minority, or immigrant neighborhoods. [7]

A postal banking system would provide free usage of Treasury Direct Express cards and other government payment services. This would have streamlined and simplified the distribution of the pandemic emergency relief funds to low-income households who badly needed the $1,200 but didn’t have bank accounts to which the money could be electronically transmitted. Furthermore, the privacy of users’ information would be much better protected by the USPS, which could only collect limited user information and is barred from sharing it. A private bank, on the other hand, will collect as much information as it possibly can and will use it, share it, and sell it for commercial, profit-making purposes.

Mnuchin and DeJoy are engaged in sabotage of the USPS, plain and simple. They want to discredit it as a public agency, undermine its union workers, and shift its revenue to private companies (namely their friends and campaign contributors).

My next post will review policy changes that would strengthen the USPS and better serve the public.

[1]      Dayen, D., 8/18/20, “Treasury’s role in postal sabotage,” The American Prospect (https://prospect.org/blogs/tap/treasurys-role-in-the-postal-sabotage)

[2]      Queally, J., 8/8/20, “ ‘Friday night massacre’ at US Postal Service as Postmaster General – a major Trump donor – ousts top officials,” Common Dreams (https://www.commondreams.org/news/2020/08/07/friday-night-massacre-us-postal-service-postmaster-general-major-trump-donor-ousts)

[3]      Editorial, 8/21/20, “The US postal service lost $0,” The Boston Globe

[4]      Morrissey, M., 8/11/20, “Trump’s war on the Postal Service helps corporate rivals at the expense of working families,” Economic Policy Institute (https://www.epi.org/blog/trumps-war-on-the-postal-service-helps-corporate-rivals-at-the-expense-of-working-families)

[5]      McCarthy, B., 4/15/20, “Widespread Facebook post blames 2006 law for US Postal Service’s financial woes,” PolitiFact, The Poynter Institute (https://www.politifact.com/factchecks/2020/apr/15/afl-cio/widespread-facebook-post-blames-2006-law-us-postal)

[6]      Shaw, C. W., 7/21/20, “Postal banking is making a comeback. Here’s how to ensure it becomes a reality.” The Washington Post (https://www.washingtonpost.com/outlook/2020/07/21/postal-banking-is-making-comeback-heres-how-ensure-it-becomes-reality/)

[7]      Carrillo, R., 8/30/20, “Postal banking: Brought to you by JPMorgan Chase?” Inequality.org (https://inequality.org/research/postal-banking-jpmorgan/)

MEDICARE’S PROBLEMATIC PRIVATE OPTION

Medicare was created in 1965 when people over 65 found it virtually impossible to get private health insurance coverage. Medicare made access to health care a universal right for Americans 65 and over. It improved the health and longevity of older Americans, as well as their financial security. Initially, Medicare consisted solely of a public insurance program that included all seniors.

Today, a mixed public-private health insurance market exists under Medicare. An examination of it is very instructive in terms of how a mixed public-private system would be likely to work if extended to people under age 65. The Medicare-eligible population has been able to enroll in private health insurance plans since the 1980s. The private health insurance industry lobbied heavily for access to the large, Medicare market.

Private health insurers argued for a private option under Medicare, stating that they could deliver better quality services at lower cost due to their efficiencies, thereby saving Medicare money. Initially they were paid 95% of what a Medicare enrollee cost based on promised efficiencies. However, once they had their foot in the door, the private insurers successfully lobbied for their payment rate to be increased. In 2009, it was as high as 120% of what a senior enrolled in the traditional, public Medicare program cost.

Not only have private health insurers been getting paid more per enrollee than it costs the government to serve seniors in the traditional, public Medicare insurance pool, but they have healthier enrollees who cost less to serve! Clearly, these private Medicare plans, referred to as Medicare Advantage plans, have not been saving Medicare any money, but rather costing it more than it would have to serve these seniors directly. [1] [2] And there’s no evidence that they are providing better quality services that would justify such a high rate of reimbursement. The Affordable Care Act is now working to lower this over-payment to private insurers.

Since shortly after they began, the private Medicare Advantage plans have been getting over paid, and this is exactly what is likely to happen if private insurers are allowed to participate in a universal health insurance program for people other than seniors.

There are four main strategies the Medicare Advantage plans have used to get paid more than they should. Private insurers in a mixed market for non-seniors would be expected to do the same things: [3]

  • Cherry-picking: The private Medicare Advantage insurers have worked to enroll  healthier seniors who are less expensive to serve. Through targeted advertising, special benefits (e.g., subsidized health club memberships), and specialized outreach they have successfully attracted a healthier than average clientele. In the market for non-seniors, the private insurers can be expected to successfully work to attract younger, healthier, and therefore less expensive enrollees, leaving sicker and more expensive people for the public plan.
  • Lemon-dropping: The Medicare Advantage insurers have implemented strategies to get sick and expensive enrollees to drop out of their plans, even though this is ostensibly illegal under Medicare. For example, they limit access to providers of expensive specialty services, require high co-pays for expensive drugs, and put a complex approval process and other barriers in front of patients trying to access expensive care. The data from Medicare Advantage plans are clear, when patients need expensive services like dialysis or nursing home care they switch back to the public, traditional Medicare in large numbers because the private insurers make it difficult to access these services and get them paid for. In the market for non-seniors, the private insurers can be expected to drop or force out the sicker, more expensive patients, dumping this burden onto the public plan.
  • Over-reporting the seriousness of diagnoses: Medicare Advantage insurers report more and more serious diagnoses than they should. This makes their enrollees appear to be sicker than they are and therefore eligible for more or higher reimbursements from Medicare. For example, knee pain can be reported as arthritis and an episode of distress can be reported as major depression. Medicare’s occasional audits of Medicare Advantage insurers indicate that they are getting paid $10 billion annually for fabricated diagnoses and much more for what appear to be overly serious diagnoses. Private insurers in a non-seniors’ market can be expected to game the payment system this way too.
  • Lobbying Congress for generous payments: Over the 35 years of Medicare Advantage plans, the private insurers have cost Medicare more than it would have cost for Medicare to serve their enrollees directly because Congress has directed Medicare to pay the insurers higher premiums than are warranted. These higher premiums support Medicare Advantage plans’ 14% overhead (e.g., profits, advertising, and executive salaries), which is seven times more than Medicare’s overhead of only 2%. The over-payment of Medicare Advantage plans peaked in 2009 at around 120% of the per patient costs of traditional, public Medicare. Since then, the over-payments have been reduced by provisions of the Affordable Care Act (aka Obama Care). The private health care industry has lots of lobbying clout with Congress and can be expected to strongly and successfully lobby for favorable treatment under any expansion of health care coverage to non-seniors, as they did when the Affordable Care Act was being passed. At that time, for example, they were able to eliminate a public option plan from being offered because they were scared (perhaps even knew) that a public option like Medicare for All might well out-perform them.

As the debate about changing the U.S. health care system to a universal single-payer system, e.g., Medicare for All, has been unfolding, some opponents of a single-payer system have proposed a mixed system with both private health insurers and a public health insurance option, often referred to simply as a “public option.”

Unfortunately, a mixed public-private health insurance market for non-seniors won’t achieve the efficiencies and quality of a single-payer system as is evident in the Medicare Advantage experience. A single-payer system is the only way to both improve quality and control costs. (See this previous post for more details.)

I urge you to contact your U.S. Representative and Senators, as well as candidates in the 2020 election, and ask them where they stand on moving toward a single-payer health insurance system, e.g., Medicare for All. The health care and related industries will lobby strenuously against this, but in the end a single-payer health care system will provide better health care and health outcomes for Americans and will save us all a lot of money.

You can find contact information for your US Representative at  http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1]      Patel, Y.M., & Guterman, S., 12/8/17, “The evolution of private plans in Medicare,” The Commonwealth Fund (https://www.commonwealthfund.org/publications/issue-briefs/2017/dec/evolution-private-plans-medicare)

[2]      McGuire, T.G., Newhouse, J.P., & Sinaiko, A.D., 2011, “An economic history of Medicare Part C,” The Milbank Quarterly (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3117270/pdf/milq0089-0289.pdf)

[3]      Himmelstein, D.U., & Woolhandler, S., 10/7/19, “The ‘public option’ is a poison pill,” The Nation (https://www.thenation.com/article/insurance-health-care-medicare/

A MIXED PUBLIC-PRIVATE HEALTH INSURANCE MARKET DOESN’T WORK

A serious debate about changing the U.S. health care system to a universal single-payer system, e.g., Medicare for All, is occurring. Some opponents of a single-payer system, who do want to expand access to health insurance, support a mixed system with both private health insurers and a public health insurance option, often referred to simply as a “public option.”

Unfortunately, the mixed public-private health insurance market some are proposing won’t achieve the efficiencies and quality of a single-payer system. It also won’t achieve universal coverage without substantial public expenditures. If universal coverage were achieved under such a mixed market, the government’s costs would be similar to or greater than those of a single-payer system but without its benefits of efficiency and quality.

There are three core problems with including private health insurers in our health care system (see this previous post for more details):

  • The private insurers will fragment the pool of insured people undermining the basic theory and efficiency of insurance – having a large pool of insurees with mixed risk profiles. Furthermore, the private insurers will work to enroll healthier people who are cheaper to serve, therefore maximizing profits, and leaving or dumping the higher cost, less healthy people in the public health plan. This and the ability of some, usually healthier people, to opt out if insurance isn’t mandated, further undermines the basis of an efficient insurance system with a large pool of people with mixed risks.
  • Private insurers have no financial incentive to maintain the long-term health of their enrollees because people change insurers frequently, for example when they change jobs. Therefore, private insurers do not have a long-term relationship with enrollees. Furthermore, profit not quality of care is the driving force for private insurers, so if denying coverage for services or providing low quality services produces more profit, that is what will happen.
  • Private health insurers spend a large portion of premiums (roughly 25%) on overhead, i.e., non-care expenses. This costs an estimated $570 billion a year and represents money that won’t be used to pay for health care services.

In a mixed market system, the presence of multiple payers (i.e., insurers) in the market means that the complexities of billing and administrative paperwork will not be eliminated as they would be with a single-payer system. Potential administrative and overhead cost savings will not be realized; they are estimated at $220 billion per year for insurers’ overhead expenses and $350 billion per year for the administrative costs of providers who have to deal with multiple sets of rules, regulations, co-pays, and forms. [1]

A single-payer system is the only way to both improve quality and control costs, as Dr. Donald Berwick (the former head of the Centers for Medicare and Medicaid Services (CMS), the federal agency that oversees those public health insurance programs) has stated. An example he cites to illustrate this point is an action he took when he was the head of CMS in 2010-2011. Data were showing that senior care facilities were using drugs to sedate patients whose behavior was challenging at times, rather than taking the time and energy to handle their behavior more appropriately. Given that Medicare and Medicaid pay for much of the care these facilities provide, he had the leverage to tell the facilities’ managers that they should address this problem or that he would develop regulations to deal with it. The result was that the facility managers reduced drug use and costs, while providing better care to their patients. Berwick could do this because he had the leverage as the primary payer (although not quite the only or single payer) for these services. [2]

The bottom line is that a mixed public-private health care system with multiple private insurers won’t work efficiently because:

  • Administrative and overhead costs will remain high,
  • The pool of people being insured will be fragmented and the private insurers will game the system to serve healthier people and maximize their profits, and
  • Improvements in quality will not occur because private insurers have no long-term incentive to keep enrollees healthy.

I urge you to study the policy proposals for our health care system; pay attention to the facts and ignore the scare tactics. If you do this and reflect on your experiences with our current health care system, I will be surprised if you don’t end up supporting a single-payer system. The transition to a single-payer system will not be easy and there will be bumps in the road.

The health care and related industries will lobby strenuously against it, but in the end a single-payer health care system will provide better health care and health outcomes for Americans and will save us all a lot of money. Remember that every other wealthy country in the world has a single-payer health care system and for half the per person cost of the U.S. system, they get better health outcomes, including everything from longevity to birth outcomes.

A mixed public-private health insurance market exists today under Medicare. An examination of it is very instructive in terms of how a mixed system would be likely to work if extended to those under Medicare’s eligibility age of 65, so I will summarize it in my next post.

[1]      Himmelstein, D.U., & Woolhandler, S., 10/7/19, “The ‘public option’ is a poison pill,” The Nation (https://www.thenation.com/article/insurance-health-care-medicare/)

[2]      Ready, T., 9/20/16, “Donald Berwick calls for ‘moral’ approach to healthcare,” Health Leaders Media (http://www.healthleadersmedia.com/quality/qa-donald-berwick-calls-moral-approach-healthcare) See in particular page 3 of the article.

THE DOWNSIDE OF PHILANTHROPY

Philanthropy, particularly at this time of year, is typically viewed as the ideal expression of caring for others and contributing to amelioration of social problems. However, philanthropy, particularly when tax-subsidized and done by the super-rich, has a significant downside.

Philanthropy in the U.S. is subsidized for those who itemize deductions on their income tax returns. Deducting charitable donations from taxable income means that the donation costs the donor less than its full amount. For a high-income tax payer paying roughly 40% of income in taxes, the donation only costs 60 cents for every dollar donated. For a lower-income taxpayer paying a 15% tax rate, a donation costs 85 cents for every dollar donated. Furthermore, it’s primarily high-income taxpayers and home owners who itemize deductions. So, both of these factors skew the financial benefits of philanthropy to those with high incomes and provide lower or no benefit to those with lower incomes.

Therefore, our current system of tax-subsidized philanthropy favors the giving preferences of the wealthy over those of low income or poor people. This problem was exacerbated by the 2017 tax cut. It raised the standard deduction for income tax calculation, which means that only the top 10% or so of incomes will still find it worthwhile to itemized deductions. Therefore, our tax system will now subsidize the philanthropy of only the top 10%.

Poor and middle-class people give away as high a percentage of their incomes as the wealthy, which suggests that the tax subsidies for philanthropy are rewarding the wealthy for behavior they would most likely engage in anyway. Charitable activities have occurred for centuries, but we have provided tax benefits for them only for the last 100 years. Therefore, these tax subsidies may well just be a benefit, a pat on the back, for high income people. If this is the case, it makes no sense to give away the tax revenue or to allow the wealthy to avoid paying their fair share in taxes by giving them a tax break for their charitable giving. [1]

Because of the growth of income and wealth inequality, and the huge amounts of money the super-rich can easily afford to give away, increasingly the philanthropic preferences of the wealthy are shaping our society. However, the giving preferences of the wealthy do not reflect the philanthropic preferences of the rest of society. [2]

Rob Reich, the author of “Just Giving,” would prefer to see society pursue democratically identified goals rather than private projects selected by wealthy philanthropists. The big splash that big philanthropy makes, such as Amazon’s Bezos’s recent announcement of a $2 billion commitment to address homelessness and improve early childhood education, distracts us from crafting policy solutions that will systematically address problems and help everyone who is facing a challenge rather than the subset who fall within the purview of a philanthropic project.

When the super-rich decide which institutions to support (e.g., universities, museums, hospitals) and which social problems to tackle (e.g., homelessness in the U.S., hunger and health in poor countries), they are usurping the role of public decision-making and priority setting that should be done by democratically run organizations, particularly governments. [3]

Charitable donations have been increasing since the 2008 recession, exceeding $400 billion for the first time in 2017. However, fewer households are giving, dropping from 66% in 2000 to 55% in 2014. While Giving Tuesday this year set a record with $380 million raised from 4 million individuals (an average of about $100 each), this represents only 0.1% (one tenth of one percent or one thousandth of overall giving).

Non-profit organizations are relying on fewer, larger donations. This means their support is less reliable from year to year and that they may tweak their missions to fit the interests of large donors. Overall, it means the favored institutions, causes, and projects of the wealthy are funded, while others struggle to survive. For example, it may mean that there is one awesome charter school for a hundred or so children, but that quality public education for all gets left behind.

Large-scale philanthropy can cause public organizations, such as public schools, to alter policies and procedures to qualify for philanthropic funding. For example, billionaire Bill Gates’s foundation’s grants for public schools have pushed school systems and states to adopt the Common Core learning standards and to internally subdivide schools into “schools-within-a-school” in accordance with grant requirements.

Super-sized philanthropy can’t replace broad-based public programs and investments that improve overall public well-being. An irony is that the super-rich may oppose public policies that would address issues they tackle through their philanthropy. The most dramatic and recent example is that of Amazon’s Bezos. He announced $2 billion in philanthropy to tackle homelessness and early education, but vehemently opposed, successfully, a per person tax on employment in Seattle to address the growing homelessness there. [4] Seattle’s homelessness problem is exacerbated by escalating housing prices driven in significant part by the need for housing for the growing number of Amazon employees in the Seattle area.

A more equitable and democratic system would stop providing a tax benefit for the philanthropy of the rich and more fairly tax the high incomes and wealth of individuals and corporations. The increased public revenue could be used to broadly and equitably improve societal well-being. For example, if we had increased the minimum wage to keep up with inflation and productivity since the 1960s, if we had reduced executive salaries and shareholder rewards in order to benefit employees, and if we provided affordable, quality health care for all, maybe we wouldn’t need super-sized philanthropy to help people afford a place to live or child care.

Charitable giving is not a bad thing, although giving of one’s time can be as valuable and more rewarding than giving money. However, our current system of tax-subsidized charitable giving and super-sized philanthropy based on great disparities in wealth is not good for democracy nor the best way to maximize social welfare.

[1]      Ortiz, A., 12/2/18, “The price of philanthropy,” The Boston Globe (This article is an interview with Rob Reich, the author of the new book “Just Giving.”)

[2]      Ortiz, A., 12/2/18, see above

[3]      Loth, R., 12/10/18, “We can’t privatize our way out of poverty,” The Boston Globe

[4]      Loth, R., 12/10/18, see above

TRUMP’S INFRASTRUCTURE PLAN: A BOONDOGGLE

Trump promised during the campaign that he would stimulate up to $1 trillion of investment in rebuilding the country’s infrastructure. This sounds surprisingly like President Obama’s efforts throughout his presidency to spend a similar amount on public infrastructure. Obama’s proposal would have stimulated job growth and the economy. It would have helped the US more quickly and fully recover from the Great Recession of 2008. But the Republicans in Congress would have none of it. It will be interesting to see how Congressional Republicans react to a major infrastructure investment proposal from President Trump, assuming he does put a proposal forward.

There are major differences between what Trump has described and what Obama proposed. Obama proposed spending federal government money using a public decision-making process to determine the projects to be undertaken.

Trump’s plan, rather than spending federal money as Obama proposed, would provide big tax breaks to private developers. The private developers, not public officials, would select the projects to undertake. The projects would, of course, be ones on which the developers would make a profit. The private developers would effectively own the completed facility and would receive federal tax credits of 82% of their equity investment. [1] That is the equivalent of buying a home and receiving 82% of the cost back in tax credits, meaning the home that you now would own outright would only have cost you 18% of its value.

Thus, the projects that would be undertaken under Trump’s plan would be quite different than those of Obama’s approach. For example, it’s unlikely under Trump’s plan that many school buildings would be renovated or that new schools would be built. Many of our school buildings do need major renovation or to be replaced, but this is not a profit-making undertaking. Similarly, public transportation is not likely to receive much investment. Public facilities, including water and sewer systems and public housing, would only receive investments if private developers were allowed to effectively own the resulting facility and make a profit from it. We’ve already seen what happens if private interests are given control of water systems. For example, in Detroit, water rates were increased to the point where many customers couldn’t afford their water bills. Then, the water authority callously shut off water to those who were behind on their bills.

Investments in our deteriorated roads and bridges would occur only if private developers were allowed to effectively own them and to charge tolls so they could profit from their investment. Investments in buildings for commercial or residential use probably would occur, because developers can charge rents and make profits. Investments would likely be made in high-income, well-developed communities where the return on investment is assured, not in communities suffering from under-investment where infrastructure improvements are most needed.

Furthermore, many of the projects that would benefit from Trump’s plan would have been undertaken anyway, without the tax credit. Therefore, the tax breaks would be windfall profits for developers and nothing more. In addition, important sources of investment capital, such as pension funds, endowments, and collective investment funds, would not be incentivized to make infrastructure investments because they are tax-exempt, non-profit entities and would not benefit from the proposed tax credit.

Trump’s advisors claim that his infrastructure plan would pay for itself because the new revenue resulting from its projects would fully cover the lost revenue from its tax credits. This conclusion is based on clearly unrealistic assumptions. It assumes that all the projects that receive the tax credit wouldn’t have otherwise occurred, that all the workers on the projects would otherwise have been unemployed, that the workers would have taxable incomes 3 to 4 times that of typical construction workers, and that all the money invested in these projects would otherwise have been sitting idle rather than invested elsewhere. [2]

In summary, the Trump infrastructure plan would not produce the infrastructure investments that are needed and that would benefit the public. It would provide private developers with windfall profits from a big tax credit that would increase the federal government’s deficit. It would privatize decisions on infrastructure investments, the effective ownership of the facilities built, and most of the resulting benefits.

Direct spending by the federal government on needed public infrastructure would be an economically sound, rational policy for making needed investments. Given the very low interest rates at which the federal government can currently borrow money by selling Treasury bonds, the cost of raising money for such investments would be very low. Therefore, the return on investment would be unusually high.

I urge you to contact your Congress people and ask them to support infrastructure spending that will benefit our nation as a whole and not just line the pockets of private developers. Ask them to ensure that the projects undertaken create infrastructure that meets public, not private, needs.

[1]      Huang, C., Van de Water, P.N., Kogan, R., and Kamin, D., 12/2/16, “Trump infrastructure plan: Far less than the claimed $1 trillion in new projects,” Center on Budget and Policy Priorities (http://www.cbpp.org/research/federal-budget/trump-infrastructure-plan-far-less-than-the-claimed-1-trillion-in-new)

[2]      Huang, C., et al., 12/2/16, see above

STOP COMMERCIALIZATION OF OUR NATIONAL PARKS

Unfortunately, the National Park Service (NPS) has just enacted a policy that allows expanded commercialization of our national parks. Corporations have been pushing for years to commercialize our national parks with their names, logos, and products. The timing of the new policy is particularly inappropriate because this year is the 100th anniversary of our national parks. Their pristine beauty and intergenerational legacy were celebrated in the Ken Burns’ wonderful 2009 PBS special, “The National Parks: America’s Best Idea.” [1]

This new policy has been put in place despite overwhelming public opposition – hundreds of public comments in opposition and over 200,000 signatures on a petition opposing this policy. [2] The new policy will allow corporate sponsorships and partnerships, lift naming rights restrictions, allow advertising in parks (including for alcohol), and allow, if not require, parks to seek donations from corporations.

The new policy allows facilities from auditoriums to benches to have corporate names on them. Buses in national parks can now be plastered with advertising. Bricks or paving stones can have corporate names and logos on them. Educational programs and endowed positions can be branded by corporations. Large banners with corporate logos will now be allowed in the parks.

Even before this policy was in place, Coca-Cola, after donating $13 million to the NPS, blocked a proposed ban on bottled water in Grand Canyon National Park. The ban would have reduced trash in the park by 20%, saving money and employees’ time, while reducing litter and wasteful use of plastic. After public pressure, NPS allowed a park-by-park ban that requires a rigorous cost-benefit analysis and a multi-layered approval process. In another pre-policy example, Budweiser had a joint marketing campaign with NPS that allowed it to use the image of the Statue of Liberty on its labels and to co-sponsor a concert in a national park.

This is happening because our national parks are starved for money. While attendance at the parks has been up for three years in a row and is 20% higher than it was in 2013, Congress and the President have provided flat funding for operating the parks. [3] Despite the increased wear and tear, as well as the need for more parking and greater capacity on trails and roads, due to the increased number of visitors, the parks have received dramatically insufficient funding to maintain, let alone expand, infrastructure. It is estimated that there is an $11 billion backlog in maintenance projects. [4] Park superintendents struggle to meet their goals of preserving their parks for future generations, while providing a safe and enjoyable experience for visitors. They will now be put in the awkward position of needing to be involved in fundraising to support their park while being banned by federal law from directly soliciting donations.

As a poignant example of the problems commercialization can cause, Delaware North Corporation (DNC) is suing the NPS for $51 million for compensation for trademarks on the names of facilities in Yosemite National Park. DNC had been the concessionaire at the park since 1993, but recently lost the contract. Because this suit could take some time to resolve, Yosemite National Park has had to rename facilities in the park. The iconic Ahwahnee Hotel has been renamed, despite having operated under this name since 1927. It was named after the Native Americans who lived in the valley and whose descendants still work in the park. The Badger Pass Ski Area, among other facilities, has also been renamed and the trademark on the name “Yosemite National Park” may also be disputed. [5]

Commercialization is spoiling the pristine beauty of our national parks and detracting from the inspiring experience of visiting them. Conservationist and President Teddy Roosevelt envisioned our national parks as being preserved for future generations “with their majestic beauty all unmarred.” Commercialization of our national parks is antithetical to that vision and to the basic principle for creating national parks – to preserve our natural wonders and beauty for future generations in their natural, awe-inspiring state. We need to do a better job of protecting our national parks and the experience of visiting them.

I encourage you to contact your members of Congress and urge them to adequately fund our national parks and to ban commercialization of them. We must resist the efforts by corporate America and budget cutting politicians to commercialize and privatize these truly unique and irreplaceable public assets.

[1]      Burns, K., & Duncan, D., 2009, “The National Parks: America’s Best Idea,” Public Broadcast System, (http://www.pbs.org/nationalparks/)

[2]      Strader, K., 1/4/17, “Disregarding public concern, the National Park Service finalizes commercialism policy and opens parks to industry influence,” Public Citizen as reported by Common Dreams (http://www.commondreams.org/newswire/2017/01/04/disregarding-public-concern-national-park-service-finalizes-commercialism-policy)

[3]      Associated Press, 1/17/17, “National Parks set yet another attendance mark,” The Boston Globe

[4]      Rein, L., 5/9/16, “Yosemite, sponsored by Starbucks? National Parks to start selling some naming rights,” The Washington Post

[5]      Howard, B.C., 1/15/16, “National park advocates appalled by Yosemite name changes,” National Geographic (http://news.nationalgeographic.com/2016/01/160115-yosemite-names-ahwahnee-hotel-wawona-curry-badger-pass/)

PROBLEMS WITH PRIVATIZED PRISONS

The problems with privatized prisons have come to public attention largely due to the investigative journalism of The Nation and Mother Jones. Their reporting underscores the importance and challenges of investigative journalism. It has become relatively routine for targets of investigative journalism to sue (or at least threaten to sue) the journalists and their publishers. Both corporate and government entities have built an ever stronger set of legal protections including employee non-disclosure agreements and other employer protection laws and legal precedents. The mainstream, corporate media have largely abandoned investigative journalism at least in part due to the threat of litigation and because news and reporting budgets have been slashed to increase profits.

When Mother Jones published its report based on a guard’s experiences at a private prison run by the Corrections Corporation of America (CCA, see overview and link below), it received a threatening letter from a law firm on behalf of CCA. It was the law firm that had represented a billionaire and large political campaign donor who had spent 3 years suing Mother Jones over its reporting of his anti-LGBT activities. Although the billionaire lost his case, the legal costs Mother Jones incurred in defending itself were a very serious financial burden. Furthermore, he pledged $1 million to support others who might want to sue Mother Jones over its reporting. [1] Needless to say, this type of aggressive behavior by the subjects of investigative reporting puts a chill on this valuable kind of journalism.

The Nation’s investigative reporting was based on reviewing a large number of documents from the Bureau of Prisons (BOP) in the US Department of Justice. The documents were obtained only after a lengthy and costly process using the Freedom of Information Act to gain access to these public records.

The records showed that the Bureau of Prisons’ monitors had documented, between January 2007 and June 2015, the deaths of 34 inmates who were provided substandard medical care in the BOP’s private prisons. Fourteen of these deaths occurred in prisons run by the Corrections Corporation of America, while fifteen were in prisons operated by the GEO Group. These two corporations are the largest operators of for-profit prisons. [2]

Despite this and other documentation of serious problems at the for-profit prisons, top BOP officials repeatedly failed to enforce the remediation of dangerous deficiencies and routinely extended contracts for the prisons. This was due, at least in part, to a cozy relationship between BOP leadership and the private-prison operators because of the revolving door of personnel between the BOP and the private providers. In 2011, for example, Harley Lappin, who had served as the Director of the BOP for eight years, left to join CCA as executive vice president. There he earned more than $1.6 million in one year; roughly 10 times his salary at BOP. Two previous BOP Directors, J. Michael Quinlan and Norman Carlson, had gone to work for CCA and the GEO Group, respectively. Five BOP employees recalled the former BOP Directors participating in meetings between the BOP and the contractor for whom they worked. The BOP employees felt this influenced decisions that were made and made taking disciplinary action against the contractors difficult.

Mother Jones magazine’s investigative reporting was done by Shane Bauer, a reporter who spent 4 months as a guard at one of CCA’s private prisons in Louisiana. [3] He found that cost cutting was a focus of both the state and CCA. Employee costs made up 59% of CCA’s operating expenses and therefore were a key target for cost-cutting. Starting guards at Bauer’s CCA facility made only $9 per hour while those at public prisons in the state made $12.50. To further save money and increase profits, the CCA facility was typically under-staffed. The facility’s guard towers were unmanned on a regular basis and staffing inside the facility was typically 10% – 20% below standard. Lockdowns, where prisoners can’t leave their wing of the prison, were supposed to be punishments for major disturbances, but they also occurred over holidays and other times when there simply weren’t enough guards to run the prison. Security checks on prisoners were logged as being done even when they weren’t because of understaffing. However, when the state’s Department of Correction was coming for an inspection, guards were required to work overtime so the facility was fully staffed.

As a result of under-staffing and perhaps under-training (another cost-cutting strategy), the use of force or chemical agents, typically pepper spray, occurred more often at the CCA prison than at comparable facilities: twice as often for force and 7 times as often for chemical agents. With 1,500 inmates, 546 sexual offenses were reported at Bauer’s prison in 2014, 69% higher than at a comparable government-run facility. Between 2010 and 2015, CCA was sued more than 1,000 times nationwide, with approximately 3% of the cases involving a death, 6% sexual harassment or assault, 10% physical violence, 15% injuries, 15% medical care issues, and 16% prison conditions and treatment.

Louisiana’s efforts to cut costs and use contractors to run cheap prisons was reflected in the $34 per inmate per day that it paid CCA, while funding for state-run prisons was about $52. In addition, the inflation-adjusted cost per prisoner at the CCA facility Bauer worked at had dropped by 20% between the late 1990s and 2014.

CCA has an incentive to keep prisoners in its prisons in order to maximize revenue. An inmate can be charged with an infraction of the rules and lose credit for good behavior. This can mean that an inmate stays in prison an extra 30 days and that CCA gets paid an additional $1,000.

In Louisiana, the state also had an incentive to keep the prison full because CCA’s contract with the state required that CCA get paid for a minimum of 96% of full occupancy. Occupancy guarantees are common in private prison contracts and are one aspect of privatization that leads to perverse incentives for the state. The state’s incentive to keep the prison full may mean that prisoners who could be released are kept in prison or that the criminal justice system is pressured to arrest and sentence enough people to ensure that the prison is full.

CCA has been very active politically through lobbying and campaign contributions. Since 1998, CCA has spent $23 million on lobbying the federal government. Since 1990, it and its employees have contributed more than $6 million to candidates and other political activity. It has lobbied for high levels of incarceration. It co-chaired the criminal justice task force of the American Legislative Exchange Council (ALEC), a corporate and conservative think tank that drafts and promotes state-level legislation. Among the pieces of legislation it has promoted are mandatory sentencing laws, punitive immigration reform, and truth-in-sentencing laws, all of which helped fuel the growing prison population of the 1990s.

CCA and other for-profit prison corporations aggressively lobbied Congress in 2009 for a minimum number of undocumented immigrants to be in private detention centers. They succeeded; US taxpayers are required by law to pay for a daily minimum of 34,000 beds in private detention centers. [4] These corporations have also lobbied against bills in Congress that would require private prisons to be subject to public information laws, such as the Freedom of Information Act. Such bills have been introduced at least 8 times in Congress, but have failed to pass each time.

These are examples of the problems and issues with private prisons, and with privatization in general. The problems with the private prisons were severe and intractable enough that the BOP concluded that it had to terminate its use of them. The BOP’s experiences and decision to end privatization should be kept in mind as other privatization efforts are reviewed or proposed.

[1]       Jeffery, C., July/August 2016, “Why we sent a reporter to work as a private prison guard,” Mother Jones (http://www.motherjones.com/politics/2016/06/cca-private-prisons-investigative-journalism-editors-note)

[2]       Wessler, S.F., 6/15/16, “Federal officials ignored years of internal warnings about deaths at private prisons,” The Nation (https://www.thenation.com/article/federal-officials-ignored-years-of-internal-warnings-about-deaths-at-private-prisons/)

[3]       Bauer, S., July / August 2016, “My four months as a private prison guard,” Mother Jones (http://www.motherjones.com/politics/2016/06/cca-private-prisons-corrections-corporation-inmates-investigation-bauer)

[4]       Editorial, 8/27/16, “Dump private prisons – all of them,” The Boston Globe

PRISON PRIVATIZATION: A FAILED EXPERIMENT

The risks of privatizing government services have been highlighted by the recent bad experience with private prisons. The Bureau of Prisons (BOP) in the federal Department of Justice (DOJ) recently announced that it will end its 20 years of using privately-run, for-profit prisons due to significant, clear cut problems.

A DOJ Inspector General’s report in August 2016 found that private prisons were less safe, less secure, and more costly than the BOP’s own government-run prisons. Among other problems, dozens of deaths linked to substandard medical care were documented. [1] Private prisons also had higher rates of assaults and 9 times more lockdowns (used to quell disturbances and punish prisoners) than government-run facilities.

Earlier reports on the BOP’s privatized prisons had found that any cost savings were negated by the costs of oversight and that the quality of services was lacking. These are common problems with privatization. Frequently, the cost of oversight is not factored into the cost-benefit analysis of privatization. Therefore, privatization may appear to save money when in actuality it doesn’t. Furthermore, the oversight that occurs is often unsuccessful in ensuring efficient and high quality performance by the private provider, as occurred with the BOP’s private prisons.

Despite these earlier findings, the use of private prisons grew and by fiscal year 2015 the BOP was paying private prison contractors $1.05 billion a year. [2] Today, the BOP houses about 22,000 of its prisoners in 13 private prisons out of a total of roughly 175,000 prisoners under its jurisdiction. Its announcement stated that it will phase out the use of these private prisons as their contracts expire over the next few years.

The US Department of Homeland Security, on the other hand, has said nothing about its future use of private detention facilities, which house about 25,000 immigrants. These detention centers have also been found to provide substandard medical care linked to deaths. They also have experienced high suicide rates. [3]

Turning over a public service to a private, for-profit corporation often creates perverse and counterproductive incentives. Privatization at the BOP, as in most cases, was focused on reducing public sector costs. The goals of minimizing cost and maximizing profit often conflict with the social mission of a public service. In the case of privatized prisons, the goals of humane treatment and rehabilitation are undermined.

In private prisons, the corporate providers cut costs (and increase profits) by increasing the number of inmates in a facility (resulting in overcrowding); decreasing the services provided to them (including rehabilitation, education, job training, and medical care); providing cheap (and sometimes unhealthy) food; using substandard facilities; and decreasing the number, pay, and training of staff (including guards, supervisors, and medical staff). In addition, to generate revenue, they charge fees to inmates and their families (that are often unaffordable), and also sell inmate labor typically without paying the inmates for it. [4] Another frequent problem with privatization is that private providers bill government for services that were not needed or in some cases were not actually provided in order to increase revenue and profits.

Because the for-profit prison corporations are private entities, they are not subject to public information laws. This lack of transparency is another frequent problem with privatization. Not surprisingly, the for-profit prison corporations tend to be quite secretive, which makes public scrutiny of them and their service delivery difficult.

The private prison business began in the 1980s. The war on drugs was underway; tough on crime and strict sentencing laws were in their political heyday. Between 1980 and 1990, state spending on prisons quadrupled and still many prison were over-crowded. [5]

At the federal level, detention of undocumented immigrants exploded in the 1990s. Until then, border crossing was treated as a civil offense, punishable by deportation. But then, as part of the tough on crime and anti-immigrant politics, Congress changed that. By 1996, crossing the border was a federal crime. Prosecutions for illegal entry rose from fewer than 4,000 in 1992, to 31,000 in 2004 under President George W. Bush, to a high of 91,000 in 2013 under President Obama.

Privatization of public services was a hot topic in the 1980s as it was purported to be more efficient, to reduce costs, improve quality, and reduce government expenditures. It also provided opportunities for private profit.

Therefore, it wasn’t surprising that privatization of prisons blossomed as a way to meet a growing need and, supposedly, reduce governments’ costs. To handle the flood of undocumented immigrants into its prisons, the BOP turned to private corporations to operate a new type of facility: low-security prisons designed to hold only non-citizens. As of June 2015, these facilities — which are distinct from immigration detention centers, where people are held pending deportation — housed nearly 23,000 people. Three private corporations now run 11 immigrant-only prisons for BOP: five are run by the GEO Group, four by the Corrections Corporation of America, and two by the Management & Training Corporation. [6]

The Corrections Corporation of America (CCA) began operation in 1983 and grew from 5 facilities in 1986 to 60 today. It houses 66,000 inmates and in 2015 reported revenue of $1.9 billion with net income of $221 million. Its main competitor is GEO Group, which has 70,000 inmates in its private facilities.

The problems with private prisons have come to public attention largely due to investigative journalism by The Nation and Mother Jones. My next post will provide an overview of their reporting. The failures of the BOP’s 20-year experience with private prisons hold many lessons for efforts to privatize other government services including roads, bridges, and public transportation; schools; water and sewer systems; and trash collection.

[1]       Wessler, S.F., 8/18/16, “The Justice Department will end all federal private prisons, following a ‘Nation’ investigation,” The Nation (https://www.thenation.com/article/justice-department-to-end-all-federal-private-prisons-following-nation-investigation/)

[2]     Wessler, S.F., 6/15/16, “Federal officials ignored years of internal warnings about deaths at private prisons,” The Nation (https://www.thenation.com/article/federal-officials-ignored-years-of-internal-warnings-about-deaths-at-private-prisons/)

[3]       Editorial, 8/27/16, “Dump private prisons – all of them,” The Boston Globe

[4]       Vanden Heuvel, K., 8/23/16, “On private federal prisons, a victory for independent journalism,” The Washington Post

[5]       Bauer, S., July / August 2016, “My four months as a private prison guard,” Mother Jones (http://www.motherjones.com/politics/2016/06/cca-private-prisons-corrections-corporation-inmates-investigation-bauer)

[6]       Wessler, S.F., 1/28/16, “ ‘This man will almost certainly die’,” The Nation (https://www.thenation.com/article/privatized-immigrant-prison-deaths/)

ISSUES WITH THE OPERATION OF CHARTER SCHOOLS

SUMMARY: Having looked at problems in our public schools and the problems with student selection, retention, and outcomes in charter schools, let’s take a look at some issues with the operation of charter schools. Charter schools:

  • Divert money, time, and attention from public schools;
  • Lack financial accountability and transparency;
  • Often have high administrative costs and salaries, but low instructional budgets and teacher pay; and
  • Subcontract with for-profit entities and ones with ties to senior administrators producing inefficiencies and conflicts of interest.

As a result, charter schools undermine our public schools and are not an effective strategy for improving our education system as a whole.

FULL POST: Having looked at problems in our public schools and the problems with student selection, retention, and outcomes in charter schools, let’s take a look at some issues with the operation of charter schools. Having charter schools means operating another system of schools in parallel to our public schools. This diverts money, time, and attention from operating and improving public schools. Members of the legislative and executive branches of government, as well as school system administrators, spend time and energy authorizing, overseeing, funding, and debating charter schools. Some of the money, time, and attention of parents, the public, and philanthropists is spent on charter schools instead of on our public schools.

In Massachusetts, for example, over $400 million annually comes out of local school funding and goes to charter schools. [1] At the same time, Boston is struggling with a $50 million shortfall in funding for its public schools for next year. The state provides some reimbursement to local school districts for students and funding lost to charter schools for the first few years after a student leaves, but at $80 million it doesn’t make up for the losses. [2]

Despite receiving substantial amounts of public money, charter schools’ finances typically lack the accountability and transparency of public schools. Part of the reason for this is that many facets of charter school operations are private. Most charter schools are governed by non-profit boards and many are operated by private education management organizations (EMOs). The EMO typically owns the furniture, equipment, and materials in a school and leases them back to the school. And it is common for the school’s teachers to be private employees of the EMO. A charter school’s building is often privately owned and leased or rented by the school. [3]

These contractual relationships with private entities offer multiple opportunities for private profit-making, sometimes involving governing board members or school management and, therefore, possible conflicts of interest. “A substantial share of public expenditure [for charter schools] … is being extracted inadvertently or intentionally for personal or business financial gain, creating substantial inefficiencies.” [4]

All of this adds up to a significant degree of privatization of education funding through charter schools. Some of the big players in the charter school business, “such as Imagine Schools, White Hat, and Charter Schools USA, are taking advantage of these opportunities in ways that are self-enriching and not in the public interest.” [5] These large charter school businesses, and others such as National Heritage Academies and Mosaica, are the dominant corporations in the field. However, they are not the ones that charter school advocates promote in the media, such as KIPP, Uncommon Schools, and Success Academy in New York City, which are all much smaller.

Charter schools tend to have very high administrative overhead expenses, including high salaries for heads of EMOs. In New York City, the CEO of Success Academy charter schools is paid over $475,000 annually. [6]

On the other hand, the vast majority of charter schools have low classroom instructional budgets. Teachers tend to be young and receive relatively low pay. In Pennsylvania, charter school teachers were found to have average salaries that were $18,000 lower than teachers in the local public schools.

Charter schools typically augment public funding with outside funding that may come from wealthy individuals, foundations, corporations, and even government grants. If this same outside funding were provided to public schools, they would be able to offer enhanced services that are often associated with charter schools, such as extended school days or years, tutoring and other academic supports, and enrichment activities. The outcomes of the public school students would presumably improve if these extra resources were provide to them.

A key measure for educational management, quality, and equity is spending per student. However, comparing spending per student between charter schools and public schools is difficult at best. First of all, as discussed in my previous post, students in the public schools, on average, present more challenges and therefore are more expensive to serve. Second, the costs of supportive services for charter school students, such as transportation, may be borne by the public school system. Third, the outside funding many charter schools obtain is often not clearly disclosed. Because the financial transparency of charter schools is typically much less than the complete openness of public school budgets, getting accurate data to calculate per student spending is difficult. Furthermore, because of their private nature, charter schools are often not responsive to Freedom of Information Act (FOIA) requests that would compel a public entity to release information. [7]

The bottom line is that charter school operations undermine our public schools, just as their student selection practices do. Their operations divert money, time, and attention from public schools, while their student selection practices divert the better students. Despite receiving substantial sums of public money, charter schools’ financial practices result in low instructional spending, high administrative costs, inefficiencies, and conflicts of interest. This is not an efficient strategy for improving our education system as a whole.

[1]       Office of the State Auditor, Commonwealth of Massachusetts, 2014, “The Department of Elementary and Secondary Education’s oversight of charter schools,” Published by the author (http://www.mass.gov/auditor/docs/audits/2014/201351533c.pdf)

[2]       Massachusetts Budget and Policy Center, 2/5/16, “Analyzing the Governor’s FY 2017 Budget,(http://www.massbudget.org/report_window.php?loc=Analyzing-the-Governor%27s-Budget-for-FY-2017.html)

[3]       Miron, G., Mathis, W., & Welner, K., 2015, “Review of separating fact & fiction,” National Education Policy Center (http://nepc.colorado.edu/thinktank/review-separating-fact-and-fiction) Note: This document is a rebuttal of an advocacy document from the National Alliance for Public Charter Schools entitled, “Separating fact & fiction: What you need to know about charter schools.” (http://www.publiccharters.org/wp-content/uploads/2014/08/Separating-Fact-from-Fiction.pdf)

[4]       Baker, B., & Miron, G., 2015, “The business of charter schooling: Understanding the policies that charter operators use for financial benefit,” National Education Policy Center, page 3 (http://nepc.colorado.edu/files/rb_baker-miron_charter_revenue_0.pdf)

[5]       Cohen, R., 12/22/15, “The charter school business,” The American Prospect, pages 2-3 (http://prospect.org/article/charter-school-business)

[6]       Baker & Miron, 2015, see above.

[7]       Miron, G., Mathis, W., & Welner, K., 2015, see above.

WHO IS BEHIND THE PUSH FOR CHARTER SCHOOLS?

There are multiple, powerful forces behind the push for charter schools. Some of them like to avoid the spotlight. In no particular order, the four major forces behind the charter school movement are the following:

Those who are looking to make a profit by tapping into the funding for public education, which is a good chunk of money, approximately $600 billion annually in local, state, and federal spending. There are profit opportunities in developing, administering, and grading tests; developing and selling curriculum materials and textbooks; and ultimately in the privatization of schools themselves, i.e., charter schools.

Those who, for ideological reasons, want to shrink government and the public sector, including public education. Privatization is a core strategy for them. So private charter schools that receive public funding are the goal.

Those who want to weaken the bargaining power of workers and unions in our economy. They also want to weaken the political power of workers and that power is most effectively exercised through unions. They want to shift power to employers, especially large corporations. They have been quite successful in doing this in the private sector and have now set their sights on weakening public sector unions, and teachers’ unions are some of the strongest and most vocal of the public sector unions. Therefore, criticizing teachers and teachers’ unions, while advocating for non-union charter schools, is aligned with their goals.

Those who sincerely want to improve education and student outcomes. They are a small force among those that are truly driving the charter school movement. Many members of the staffs of charter schools and parents who support charter schools do have this as their goal, but they tend to be blind to the larger forces and interests at work behind the scenes.

The forces behind the charter school push have been pitching a narrative forcefully and effectively for 30 years or so now that states that US public schools are failing and that teachers and teachers’ unions are to blame. And that the solution is charter schools, preferably private, non-union ones, but that are funded with public tax dollars. Some charter schools are for-profit and many of them have links to for-profit corporations.

The first three of the four forces listed above have coalesced into a powerful, unified voice pushing this narrative and the implementation of their solution. They use the rationale of innovation to improve education and student outcomes to hide their real motives. They very effectively persuade the public and parents that not only do they have altruistic motives but that parents and the public should support their charter school movement.

Everyone believes that every child should receive high quality educational experiences that lead to success in school and a trajectory of progress and success throughout his or her years in school, as well as in life beyond school. However, those who believe public schools are the best vehicle to realize this vision, have not developed, let alone promoted, an alternative narrative to that of the charter school proponents. They have not mounted an effective, coherent rebuttal of the charter advocates’ statement of the problem or their solution. Without a counter narrative, public school supporters are confused and torn about whether to oppose or support charter schools – and even about how to talk about them.

My next post on our education system will identify the real problems with our public schools. A subsequent post will present some solutions.

THE CORPORATE EDUCATION INVASION Part 2

ABSTRACT: The most recent embodiment of the corporate efforts to capture (i.e., privatize) funding from public K-12 education is the new Common Core national curriculum standards and the testing that accompanies it. Common Core’s implementation will require public school systems to spend billions of dollars on new curriculum materials and on new testing, including software, hardware, and technology infrastructure as the testing is computer and Internet based. This comes at a time when school budgets are being cut, teachers and other staff are being laid off, and music, art, and extracurricular activities are being eliminated.

All the focus on privatization, on charter schools, on testing, and on the Common Core standards as the solutions to our supposedly failing public schools has diverted attention from the real failure of our public schools and our society. The failure of our public schools is their inability to close the gap in educational outcomes between well-off white children without special needs and everyone else. Low-income and minority students, along with those with special needs and English as a second language, typically arrive at school already well behind their better-off peers. Catching up is difficult and we don’t give our school systems the resources to have a realistic chance of closing the gap.

Expecting our schools to fix the pervasive impacts of poverty and inequality is a prescription for failure. To use that failure as an excuse to privatize schools and force public schools to spend billions on new curricula and testing is misguided (assuming the best of intentions) and only exacerbates the problem. It would be far more effective and efficient to use those billions of dollars to provide high quality early care and education (i.e., child care) and other supports to low income families with children under school age.

FULL POST: The most recent embodiment of the corporate efforts to capture (i.e., privatize) funding from public K-12 education is the new Common Core national curriculum standards and the testing that accompanies it. The corporations and their allies have convinced the public and policy makers that our public schools are failing through an extensive and inaccurate PR campaign. Their solutions are new education standards and accountability through testing.

The new Common Core standards have been widely adopted, in large part due to federal grants that effectively required their adoption. However, the pushback against Common Core is now taking hold with a broad and surprisingly varied set of opponents. The opposition includes working and upper class suburbanites, right wing Tea Partiers, and teachers. [1]

Common Core’s implementation will require public school systems to spend billions of dollars on new curriculum materials and on new testing, including software, hardware, and technology infrastructure as the testing is computer and Internet based. This comes at a time when school budgets are being cut, teachers and other staff are being laid off, and music, art, and extracurricular activities are being eliminated. [2]

It’s worth noting that the Gates Foundation spent over $200 million, given to a wide range of over 30 organizations (e.g., colleges and universities, for-profit and not-for-profit education corporations, states and local school systems, think tanks and advocacy groups, and teachers’ unions) developing and building support for the Common Core. [3] The Common Core standards were NOT developed and adopted through a democratic process that engaged the public and a broad set of stakeholders. The writers of the standards included no experienced classroom teachers, no educators of children with special needs, and no early childhood educators. The single largest group on the drafting committee was from the testing industry. Furthermore, the standards were not pilot tested in the real world and there is no process for challenging or revising them. [4]

While the stated goals of the Common Core are to improve student outcomes and produce a better prepared workforce, it’s hard to overlook the billions of dollars of immediate business for corporations. Therefore, it is not surprising that the Chamber of Commerce spent more than a million dollars promoting the adoption of the Common Core. [5]

All the focus on privatization, on charter schools, on testing, and on the Common Core standards as the solutions to our supposedly failing public schools has diverted attention from the real failure of our public schools and our society. The failure of our public schools is their inability to close the gap in educational outcomes between well-off white children without special needs and everyone else. However, this failure goes well beyond the school system. Low-income and minority students, along with those with special needs and English as a second language, typically arrive at school already well behind their better-off peers. Catching up is difficult and we don’t give our school systems the resources to have a realistic chance of closing the gap.

It would be much more cost effective and the likelihood of success would be higher if we addressed the root causes of the school readiness gap. This means supporting families and children in the years from birth until they enter school, and during pregnancy. However, our political leaders haven’t mustered the political will to seriously address these issues. And corporations haven’t figured out how to profit of off these services.

Expecting our schools to fix the pervasive impacts of poverty and inequality is a prescription for failure. To use that failure as an excuse to privatize schools and force public schools to spend billions on new curricula and testing is misguided (assuming the best of intentions) and only exacerbates the problem. It would be far more effective and efficient to use those billions of dollars to provide high quality early care and education (i.e., child care) and other supports to low income families with children under school age.

[1]       Murphy, T., Sept./Oct. 2014, “Tragedy of the Common Core,” Mother Jones

[2]       Ravitch, D., 6/9/14, “Time for Congress to investigate Bill Gates’ role in Common Core,” Common Dreams (http://www.commondreams.org/views/2014/06/09/time-congress-investigate-bill-gates-role-common-core)

[3]       Murphy, T., Sept./Oct. 2014, “Tragedy of the Common Core,” Mother Jones

[4]       Ravitch, D., 6/9/14, “Time for Congress to investigate Bill Gates’ role in Common Core,” Common Dreams (http://www.commondreams.org/views/2014/06/09/time-congress-investigate-bill-gates-role-common-core)

[5]       Murphy, T., Sept./Oct. 2014, “Tragedy of the Common Core,” Mother Jones

THE CORPORATE EDUCATION INVASION Part 1

ABSTRACT: Corporations covet public funding streams, especially large and consistent ones. A relatively recent example of a focused effort by corporations to capture public funding is evident in our public schools. These efforts have included an extensive public relations campaign aimed at convincing the public and elected officials that our public schools are failing. This is a standard corporate strategy: create a real or imagined crisis in a public service and push privatization as the solution.

This attack on our public schools is not only inaccurate, it diverts attention from the real issues underlying poor educational outcomes, which are poverty and inequality. Another key component of the PR strategy is to blame teachers for the supposed failure of our public schools. This undermines teachers and their unions, who are the most likely constituency that would stand up and oppose these privatization efforts.

The PR strategy has worked and privatized public education and testing are now multi-billion dollar corporate revenue streams. Charter schools, despite the promises of privatizers to produce better results, are no better on average than public schools with comparable populations of students.

Corporate efforts to profit off of public funding streams are not new. Eisenhower warned of the military-industrial complex back in the 1950s. The flow of money to private corporations, privatization in the broad sense, threatens to distort public services, decisions, and spending, because the interests and priorities of the corporations receiving the public funds are different from those of the public.

FULL POST: Corporations covet public funding streams, especially large and consistent ones. A relatively recent example of a focused effort by corporations to capture public funding is evident in our public schools. Although corporations have long sold textbooks and other curriculum materials to public schools, a lucrative business with a large and reliable funding stream, recent efforts have focused on privatizing the actual delivery of education, as well as designing and implementing testing.

These efforts have included an extensive public relations campaign aimed at making the public receptive to privatized spending in these areas. A major focus of this public relations (PR) campaign has been to convince the public and elected officials that our public schools are failing, that alternatives are necessary, and that the private sector is by definition more effective and efficient than the public sector. This is a standard strategy straight out of the playbook of corporate America and their political allies: create a real or imagined crisis in a public service and push privatization as the solution. (For more on this strategy, see my blog post, “Find a crisis, demand privatization,” of 6/5/14 [https://lippittpolicyandpolitics.org/2014/06/05/find-a-crisis-demand-privatization/].)

The PR campaign makes the case that our schools are failing by comparing US students to those from other countries. Although average scores indicate that US students perform worse than others, white children from well-off families do just fine in international comparisons. It is the gap between those students and less affluent and minority students that drags the average down. In actuality, a reliable nationwide test of student performance, the National Assessment of Educational Progress (NAEP), finds that US students’ performance is at the highest level on record. [1] So this attack on our public schools is not only inaccurate, it diverts attention from the real issues underlying poor educational outcomes, which are poverty and inequality in the US.

A second component of the PR strategy is the assertion that standardized, high stakes testing is necessary to measure the performance of US students and to establish accountability for improving results. Although testing is presented as part of a “no child left behind” goal, the commitment and funding to improve schools and education (including preschool education) for the students identified as being behind has never materialized. Meanwhile, policies and the funding to address poverty and inequality more broadly are not even on the radar screen.

A final component of the PR strategy is to blame teachers for the supposed failure of our public schools. This again diverts attention from the real underlying issues of poverty and inequality in the US. It also undermines teachers and their unions, who are the most likely constituency that would stand up and oppose these privatization efforts. Undermining unions (and the bargaining power and rights of workers in general) is an overarching goal of large corporations, so this kills two birds with and one stone from their perspective.

The PR strategy has worked and privatized public education and testing are now multi-billion dollar corporate revenue streams. Testing alone is a $2.7 billion a year industry in the US and the new Common Core standards will grow the testing business further. Wall Street investors, including private equity and hedge fund managers, are investing in for-profit corporations in the student testing and charter school industries because they are seen as opportunities for high profits and growth.

Charter schools, despite the promises of privatizers to produce better results, are no better on average than public schools with comparable populations of students. Many of the charter schools that show good results achieve them by attracting motivated students from motivated families. And they also cull students along the way, forcing or pushing out students who aren’t performing well, thereby improving testing results and other statistics. They also typically serve fewer students with special needs and with English as a second language than the public schools. [2]

Corporate efforts to profit off of public funding streams are not new. Eisenhower warned of the military-industrial complex back in the 1950s, when private corporations’ receipt of Defense Department funds was already distorting public policy making and spending. The corporate effort to tap into health care funding from Medicare and Medicaid is another example. For-profit prisons, water and sewer systems, and public education are more recent examples.

In all these cases, the flow of money to private corporations, privatization in the broad sense, threatens to distort public services, decisions, and spending, because the interests and priorities of the corporations receiving the public funds are different from those of the public. Most notably, the corporations are primarily interested in increased revenue and profit, while public goals such as quality and effectiveness of services, public health and safety, and equitable treatment of all service recipients, are typically secondary, at best, to the corporation. Furthermore, there is substantial evidence that private delivery of these services is NOT more effective or more efficient. Nonetheless, the advocates of privatization continue to assert that they are. (For more detail, see my previous posts on privatization, especially the ones on 10/16/12 and 10/23/12.)

[1]       Ravitch, D., 2/17/14, “Reign of error: The hoax of the privatization movement and the danger to America’s public schools,” as reviewed by Featherstone, J., in The Nation

[2]       Ravitch, D., 2/17/14, see above

FIND A CRISIS, DEMAND PRIVATIZATION

ABSTRACT: Republicans are up to their old tricks: create a crisis at a public agency and then claim that privatization is the answer. The latest example is the Department of Veterans Affairs (VA). Congress hasn’t provided sufficient funding to serve the 1.5 million new veterans from the Iraq and Afghanistan wars. When US Senate legislation proposed 27 new VA health facilities (a 2% increase) and authorized hiring additional doctors and nurses back in February, the Republicans filibustered it, obstructing progress. Now that the lack of capacity has come to public attention, the Republicans are claiming that privatization is the answer.

Most veterans give high ratings to the care they get from the VA and are opposed to privatization. The VA system is actually a model from which our private health care system could learn a lot.

This political tactic of using a “crisis” to push for privatization is one that Republicans have used with Social Security, the US Postal Service, the public school system, road and bridge building and maintenance, the prison system, and so forth. Conservatives in Canada have used the tactic as well to attack their postal service and their universal public health care system.

Using a real, created, or perceived crisis as an excuse to allow inefficient corporate takeovers of societal functions best suited to provision by a public entity puts corporate profits ahead of the public good. Such privatization through “crisis” is a disingenuous tactic used by ideologues who want to shrink government and expand corporate profits regardless of whether or not it’s in the best interests of citizens and taxpayers.

FULL POST: Republicans are up to their old tricks: create a crisis at a public agency and then claim that privatization is the answer. Sometimes the crisis is real, sometimes it is manufactured, and sometimes it’s a perception created by a public relations campaign. However, the answer is always the same: privatize the agency because the “crisis” proves that the public sector can’t do the job.

The latest example is the Department of Veterans Affairs (VA). The cover-up of the waiting list for needed care in the VA’s Phoenix office is unforgiveable. But why was the agency unable to deliver timely care? Is it because doctors, nurses, and others were sitting around with their feet up doing nothing? Or is it because of a lack of capacity to provide the needed care? I’m willing to bet it’s the latter.

Congress hasn’t provided sufficient funding to serve the 1.5 million new veterans from the Iraq and Afghanistan wars. Many of these veterans have injuries, including traumatic body and brain injuries, that would have killed them on the battlefield in the past. However, our improved medical capabilities on the battlefield have saved their lives, but returned them home with significant health care needs. Mental health needs have grown as well.

However, when US Senate legislation proposed 27 new VA health facilities (a 2% increase) and authorized hiring additional doctors and nurses back in February, the Republicans filibustered it, obstructing progress on expanding needed health services for our veterans.

Now that the lack of capacity has come to public attention, the Republicans are claiming that privatization is the answer. Should we turn health care of our veterans over to the health care system that increases its profits by finding ways to deny coverage and care? Interestingly, most veterans give high ratings to the care they get from the VA and are opposed to privatization. The VA has unmatched expertise in traumatic brain injury, amputee care, and other combat-related health issues and it serves rural areas where private sector care is scarce. [1] It computerized medical records and undertook quality of care initiatives long before the private sector. The VA system is actually a model from which our private health care system could learn a lot. [2]

This political tactic of using a “crisis” to push for privatization is one that Republicans have used with Social Security, the US Postal Service, the public school system, road and bridge building and maintenance, the prison system, and so on. Conservatives in Canada have used the tactic as well to attack their postal service and their universal public health care system. [3] Using a real, created, or perceived crisis as an excuse to allow inefficient corporate takeovers of societal functions best suited to provision by a public entity puts corporate profits ahead of the public good.

Privatization of the VA is not good for our veterans or taxpayers. Such privatization through “crisis” is a disingenuous tactic used by ideologues who want to shrink government and expand corporate profits regardless of whether or not it’s in the best interests of citizens and taxpayers. [4]

[1]       Weisman, J., 5/30/14, “VA scandal forces Congress to study systemic change,” The Boston Globe from The New York Times

[2]       Gordon, S. 5/27/14, “Privatization won’t fix the VA,” The Boston Globe

[3]       Taliano, M., 5/16/14, “Privatization is the problem, not the solution,” Common Dreams, http://www.commondreams.org/view/2014/05/16-7

[4]       See my previous posts on privatization, especially the ones of 10/23/12 and 10/16/12, for more detail on the shortcomings of privatization.

“TRADE” AGREEMENTS & CORPORATE POWER

ABSTRACT: The Trans-Pacific Partnership (TPP) “trade” treaty that is currently being negotiated (see post of 9/10) would give corporations the right to sue governments if their laws, regulations, or actions negatively affect current or expected future profits. Under existing trade agreements, over $380 million has already been paid to corporations by governments. Furthermore, there are 18 pending suits by corporations against governments for $14 billion. Corporations will use or set up foreign subsidiaries to file suits under investor-state dispute resolution provisions of trade treaties (corporations are referred to as “investors”), thereby avoiding a country’s legal system and relying instead on the international tribunals (i.e., courts) created by the treaties.

The TPP would require countries to allow corporations to compete for the delivery of public services. The result could well be that some people cannot afford a corporation’s fees for basic, formerly universal, public services (such as water).

If ratified, the Trans-Pacific Partnership treaty would enhance the power and rights of corporations while weakening US sovereignty. Given its unlimited term and the virtual impossibility of making changes (which require the unanimous consent of the parties), it amounts to a Constitutional change that gives foreign corporations equal (if not greater) legal status and power than the US and other governments. Furthermore, it would foster a race to the bottom for public health, the environment, and workers, especially well-paid blue and white collar workers, as jobs continue to move overseas and compensation and safety are attacked as limiting profits.

The secrecy and potency of the TPP make it feel like a conspiracy among our corporate and political elite to give corporations the ultimate power in our society. I strongly urge you to call your US Senators, and your Representative as well, to ask them to oppose “fast-track” rules for consideration of the Trans-Pacific Partnership “Trade” Treaty and to demand full disclosure and discussion of its provisions in Congress and with the public.

FULL POST: The Trans-Pacific Partnership (TPP) “trade” treaty that is currently being negotiated (see post of 9/10) would give corporations the right to sue governments if their laws, regulations, or actions negatively affect current or expected future profits. The North American Free Trade Agreement (NAFTA) between the US, Canada, and Mexico and other treaties that are already in place give corporations similar rights. Under existing trade agreements, over $380 million has already been paid to corporations by governments. Furthermore, there are 18 pending suits by corporations against governments for $14 billion. [1] For example, Chevron is suing Ecuador over its environmental laws, Eli Lilly is suing Canada over its patent laws, and European investment firms are suing Egypt over its minimum wage laws. [2]

Philip Morris is suing Australia over its cigarette labeling laws. However, because the US – Australia trade agreement doesn’t include investor-state dispute resolution provisions (corporations are referred to as “investors”) that allow such suits, Philip Morris is using other trade treaties and its Swiss and Hong Kong subsidiaries to file its suits. [3] Corporations will use or set up foreign subsidiaries to file suits under investor-state dispute resolution provisions of trade treaties, thereby avoiding a country’s legal system and relying instead on the international tribunals created by the treaties.

Other examples of corporations suing governments include:

  • Under NAFTA, a US corporation sued and received $13 million from Canada, which then reversed its ban on a gasoline additive that contains a known human neurotoxin.
  • Another US corporation has filed a $250 million investor-state suit against Canada under NAFTA because of its ban on fracking.
  • A French and a US company have succeeded in separate suits totaling close to $300 million against Argentina because its federal government failed to override 2 provinces’ limits on water rate increases after water systems were privatized in a period of economic distress, even though it would have been an unconstitutional intervention in provincial affairs for the federal government to do so. [4]
  • (There are many more examples and much more information on the TPP at www.citizen.org/TPP.)

The TPP language would require countries to allow corporations to compete for the delivery of public services, such as water and sewer, electricity, education, and transportation services. The result could well be, as has occurred in Argentina and other South American countries, that some people cannot afford a corporation’s fees for basic, formerly universal, public services (such as water), or that a distinctly two-tiered system emerges with high quality services for those who can afford to pay and poorer quality services for those who can’t. [5]

If the TPP is ratified by the US, it would, for example, undermine efforts to make the giant international mining corporation Rio Tinto abide by the Clean Air Act at its massive copper mine west of Salt Lake City. [6] Under the TPP, US and local regulations could be nullified or forced to change in areas such as:

  • Worker safety and the minimum wage
  • Importation of food and food labeling
  • Fracking for and exportation of natural gas
  • The length of patent protection on drugs (which could raise drug prices by delaying availability of generic versions of drugs)
  • The separation of banking from financial speculation that has been proposed as part of the answer to the 2008 financial collapse (i.e., reinstating Glass-Steagall provisions). Furthermore, TPP would prohibit a transaction tax on the buying and selling of securities, derivatives, and other financial instruments (as has been proposed in the US and as is being implemented in Europe).

If ratified, the Trans-Pacific Partnership treaty would enhance the power and rights of corporations while weakening US sovereignty. Given its unlimited term and the virtual impossibility of making changes (which require the unanimous consent of the parties), it amounts to a Constitutional change that gives foreign corporations equal (if not greater) legal status and power than the US and other governments. This is in total contradiction to the design of US democracy where there is a balance of power, checks and balances, elections every two years, and law making that can change policies and the course of the country on a regular basis.

Furthermore, it would foster a race to the bottom for public health and the environment by giving corporations the right to challenge health and environmental laws and regulations in pursuit of ever higher profits. Similarly, it would foster a race to the bottom for workers, especially well-paid blue and white collar workers, as jobs continue to move overseas (as they have done under NAFTA), and compensation and safety are attacked as limiting profits.

I’m not one who generally buys conspiracy theories, but the secrecy and potency of the TPP make it feel like a conspiracy among our corporate and political elite to give corporations, which are totally focused on maximizing profits, the ultimate power in our society. Therefore, corporations, not our governments or other civic organizations, would determine our well-being as individuals, communities, and nations, as well as, ultimately, the well-being of our planet. I strongly urge you to call your US Senators, and your Representative as well, to ask them to oppose “fast-track” rules for consideration of the Trans-Pacific Partnership “Trade” Treaty and to demand full disclosure and discussion of its provisions in Congress and with the public.

(You can find out who your Congress people are and get their contact information at: http://www.senate.gov/general/contact_information/senators_cfm.cfm for your Senators and http://www.house.gov/representatives/find/ for your Representative.)


[1]       Public Citizen, retrieved 9/9/13, “TPP’s investment rules harm public access to essential services,” www.citizen.org/TPP

[2]       Hightower, J., August 2013, “The Trans-Pacific Partnership is not about free trade. It’s a corporate coup d’état – against us!” The Hightower Lowdown

[3]       Public Citizen, retrieved 9/9/13, “TPP’s investment rules harm public health,” www.citizen.org/TPP

[4]       Public Citizen, retrieved 9/9/13, “TPP’s investment rules harm the environment,” www.citizen.org/TPP

[5]       Hightower, J., August 2013, “The Trans-Pacific Partnership is not about free trade. It’s a corporate coup d’état – against us!” The Hightower Lowdown

[6]       Moench, B., 6/25/12, “America: A fire sale to foreign corporations,” Common Dreams (http://www.commondreams.org/view/2012/06/25-0)

“TRADE” AGREEMENT SUPERSIZES CORPORATE POWER

ABSTRACT: The US is currently negotiating a trade agreement known as the Trans-Pacific Partnership (TPP). The negotiations have been so secretive that most members of Congress have never seen a draft of the treaty and the public is mostly unaware of its existence. The mainstream (corporate) media have hardly mentioned the TPP, despite its target date for completion of December 2013.

Much of the TPP has nothing to do with trade; its focus is largely on providing legal rights to multi-national corporations so they can make profits without interference from government laws, regulations, or sovereignty. Foreign corporations would have the right to sue national or local governments if their laws, regulations, or actions negatively affected current or expected future profits. These suits would be resolved by an Investor-State Dispute Resolution system using an international tribunal (i.e., court).

Interestingly, conservatives have generally objected to the use of international precedents and tribunals that might impinge on US sovereignty and initiatives. However, they are generally supportive of the rights and power given to foreign corporations and international tribunals by the TPP.

The Trans-Pacific Partnership treaty puts corporate interests ahead of American interests. I strongly urge you to call your US Senators to ask them to oppose “fast-track” rules for consideration of the Trans-Pacific Partnership “Trade” Treaty and to demand full disclosure and discussion of its provisions in Congress and with the public.

FULL POST: The US is currently negotiating a trade agreement known as the Trans-Pacific Partnership (TPP). The negotiations have been so secretive that most members of Congress have never seen a draft of the treaty and the public is mostly unaware of its existence. Yet, Congress is going to be asked soon to vote on considering the treaty under “fast-track” rules that mean it would get a yes or no vote in Congress with limited debate and no amendments allowed. And once the treaty is approved, it has no expiration date and changes can only be made with the unanimous agreement of the participating countries. [1]

The mainstream (corporate) media have hardly mentioned the TPP, despite the fact that it includes 40% of the global economy, involves 12 (and potentially more) countries [2], has had 18 negotiating sessions, and has a target date for completion of December 2013.

Given that the tariffs among the participating countries are already low and that the US already has trade agreements with many of them (Canada, Mexico, Chile, Peru, Australia, and Singapore), there would seem to be little need for the TPP. However, much of the TPP has nothing to do with trade – only 5 of its 29 sections actually deal with trade. Its focus is largely on providing legal rights to multi-national corporations so they can make profits without interference from government laws, regulations, or sovereignty. It has been described as the most business-friendly “trade” agreement in history and as NAFTA (the North American Free Trade Agreement between the US, Canada, and Mexico) on steroids. (Most people view NAFTA as having been good for US corporations but as not having lived up to the promise that it would create jobs in the US, let alone good jobs with good wages.)

The only people with access to the negotiations and draft treaty language have been members of the US Trade Representative’s official Trade Advisory Committees. These individuals are sworn to secrecy, as are the negotiators for the other countries. Of the roughly 700 US advisory committee members, about 600 represent the business community, about 20 represent workers, and none represent citizens’ or civic groups.

The TPP benefits corporations, particularly foreign corporations, by

  • Strengthening patent, copyright, and intellectual property rights
  • Banning government contracting rules that favor domestic businesses (e.g., Buy America incentives)
  • Allowing government regulations to be challenged and overridden if they reduce a foreign corporation’s profits, including, for example, regulations of food safety, environmental impact, the financial system, public utilities and services, and working conditions (including minimum wage, overtime, safety, and child labor laws)
  • Giving special international tribunals (i.e., courts) the ability to overrule domestic laws and regulations if they would hurt foreign corporations profits
  • Creating a special visa program for highly-paid, white-collar professionals that bypasses all other immigration regulations and processes. [3]

Corporations would have a legal status equal to or superseding that of countries. Foreign corporations would have the right to sue national or local governments if their laws, regulations, or actions negatively affected current or expected future profits. [4] These suits would be resolved by an Investor-State Dispute Resolution system using an international tribunal (i.e., court). (Corporations are referred to as “investors.”) Basically, this is an alternative legal system that supersedes US courts and laws. The three person tribunals would operate behind closed doors and be made up of private lawyers. The same lawyers who serve as judges in one case might represent corporations in other cases. There is no appeal process and when a corporation wins, the losing government must pay the corporation for its “lost” profits and legal costs. (My next post will provide examples of how corporations are using similar rights under existing treaties and of the effects TPP is likely to have.)

Interestingly, conservatives have generally objected to the use of international precedents in making court decisions and writing US laws, and to the United Nations, treaties, and international human rights tribunals that might impinge on US sovereignty and initiatives. However, they are generally supportive of the rights and power given to foreign corporations and international tribunals by the TPP, despite the fact that they would clearly limit US sovereignty. The TPP would give foreign corporations greater rights than domestic firms and would expand incentives for US corporations to move investments and jobs overseas. [5]

The Trans-Pacific Partnership treaty puts corporate interests ahead of American interests. And it is widely viewed as benefitting large, international corporations, while hurting small businesses, small farmers, and workers, especially well paid blue and white collar workers. I strongly urge you to call your US Senators, and your Representative as well, to ask them to oppose “fast-track” rules for consideration of the Trans-Pacific Partnership “Trade” Treaty and to demand full disclosure and discussion of its provisions in Congress and with the public.

(You can find out who your Congress people are and get their contact information at: http://www.senate.gov/general/contact_information/senators_cfm.cfm for your Senators and http://www.house.gov/representatives/find/ for your Representative.)


[1]       Hightower, J., August 2013, “The Trans-Pacific Partnership is not about free trade. It’s a corporate coup d’état – against us!” The Hightower Lowdown

[2]       The negotiations currently include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Other countries are allowed to join in the future and China, Indonesia, and Russia are likely to join at some point.

[3]       Stangler, C., 9/2013, “MBAs without borders,” In These Times

[4]       Hauter, W., 8/22/13, “The un-American way: The Anti-democratic Trans-Pacific Partnership threatens food safety and public health,” OtherWords (www.commondreams.org/view/2013/08/22-3)

[5]       Moench, B., 6/25/12, “America: A fire sale to foreign corporations,” Common Dreams (http://www.commondreams.org/view/2012/06/25-0)

UPDATES ON POSTS ON LOW PAY FOR FAST-FOOD WORKERS, PESTICIDES AND BEES, & DETROIT

PAY FOR WORKERS IN THE FAST-FOOD INDUSTRY (A follow-up to my 9/2/13 post)

As the portion of the jobs in our economy that are in the retail sector grows, it is important to the well-being of individuals and families, as well as the health of the economy, that these jobs provide better pay. But could the fast-food industry, for example, afford to pay higher wages?

Franchisees in the fast-food industry, in other words your local outlets, have profit margins of only 4% to 6% – 4 to 6 cents on every dollar they take in. Their parent companies, the 5 big, publicly-traded fast-food companies, have profit margins of 16% – 16 cents on every dollar they take in. That is 73% higher than the average big US company’s profit margin. In other words, they are VERY profitable. Last year, McDonald’s reported a profit of $5.5 billion on sales of $27.6 billion – a 20% profit margin. And its CEO got $13.8 million. McDonald’s, and the others, could cut the fees they charge their franchisees so the franchisees could increase pay for their workers. (Choi, C., & Fahey, J., 9/2/13, “Fast-food workers face a big problem: Who’ll fund raises?” The Boston Globe (from the Associated Press))

 

PESTICIDES AND BEES (A follow-up to my 8/10/13 post)

The good news is that the Environmental Protection Agency (EPA) has released new rules and requirements for labels for pesticides containing neonicotinoids, which are linked to mass killing of bees. These labels feature a special warning and prohibit use of these products where bees are present. (Boyd, V., 8/21/13, “EPA issues new label rules for neonicotinoids to protect bees,” The Grower) (Aren’t bees present everywhere?)

However, there are three pieces of bad news. First, a recent study found that some home garden plants sold at Home Depot, Lowe’s and other garden centers have been pre-treated with the neonicotinoids. (Friends of the Earth, 8/14/13) Second, one of Florida’s biggest citrus growers, Ben Hill Griffin, Inc., has been fined only $1,500 after illegally spraying pesticides multiple times that killed millions of bees. (Salisbury, S., 8/28/13, “Ben Hill Griffin Inc. accused of killing honeybees, faces fine,” Palm Beach Post) Third, the chemical corporations Syngenta and Bayer have submitted legal challenges to the European Union’s 2 year suspension of the use of several neonicotinoid pesticides, which is scheduled to begin in December. (Boyd, V., 8/28/13, “Syngenta, Bayer challenge EU’s ban on neonicotinoids,” The Grower)

 

MORE ON DETROIT’S BANKRUPTCY (A follow-up to my 9/1/13 post)

The factors contributing to Detroit’s bankruptcy include suburban sprawl, the lack of regional planning or coordination, Michigan’s declining economy, and the state’s reneging on revenue sharing (to the tune of $700 million). In addition, people have moved out of the city – since 2000 the city’s population has declined by about 200,000 to 687,000 – eroding the tax base. Residents in blighted neighborhoods have sold homes for $5,000 that were once worth $100,000; others have simply abandoned their houses.

Since 2007, Detroit’s median income has fallen from $30,000 to $25,000; less than half of the national figure. 40% of those remaining in Detroit are in poverty. Almost 20% of Detroit households have no access to a car.

As public services have been cut over many years, living conditions have declined, including increased crime in part due to a police force reduced by roughly 35% (4,000 officers to 2,600). The murder rate is the 2nd highest of any city in the country (Flint, MI is 1st).

The 9,700 city employees are taking unpaid furloughs and wage cuts, some as much as 20%. And the 21,000 retirees know their pensions are at risk. Meanwhile, Detroit’s bankruptcy process is expected to cost the city $100 million in legal fees and costs.

While the downtown is thriving with business activity and gentrification (and a new sports arena on its way), the neighborhoods, as little as a half mile away, are eviscerated. The neighborhoods are 80% black and the homes of thousands of current and retired city employees.

The city’s receiver proposes privatizing trash, electricity, and water and sewer services. Although that will save the city money, it is unclear how many of the residents would be able to afford the fees private providers would charge, and lower quality services are likely, one way or the other. The state has taken over running 15 low performing schools, but the initial results have not been promising. (Felton, R., 9/2013, “Is there Detroit after bankruptcy?” In These Times)

PRIVATIZATION EXAMPLES I

ABSTRACT: Currently, privatization of public sector functions is being looked to to generate badly needed immediate cash. First example: the city of Chicago, desperate for cash to cover a budget shortfall, sold its parking meter revenue for the next 75 years for $1.2 billion. Parking rates in some neighborhoods have quadrupled. The city is prohibited from engaging in any activity that could be competition for the parking meters and has to reimburse the private owners for any lost revenue due to a street closing, a meter being out of commission, and free parking provided to the disabled. Chicago has given up the ability to make decisions about parking for 75 years and appears to have in effect guaranteed substantial profits to the private investors.

Second example: Indiana received $3.8 billion in 2006 from an international consortium in exchange for the right to maintain, operate, and collect tolls for 75 years on 157 miles of Interstate 90. The 400 page lease agreement is indicative of both the thought that went into it and the complexity of such an arrangement.

A danger in these high-value, long-term privatization deals is that sophisticated investors will take advantage of government officials desperate for short-term revenue, who often don’t take the time or have the expertise to perform appropriate, long-term, cost-benefit analyses. Because of their significant impact on the public, any privatization deal should require public hearings, and those with a longer time span than the term of office of the person signing it should require super-majority approval (say 2/3) by the relevant legislative body, while those over 10 years should require a voter referendum with a super-majority (say 2/3) needed for approval.

FULL POST: In my previous post (10/16/12), I provided an overview of privatization of public sector functions and evidence that there’s no guarantee of improved performance. Privatization doesn’t always meet its stated goals of saving taxpayers’ money, improving public services, and/or increasing accountability. It only tends to be successful if there is good oversight and regulation, as well as real competition.

Currently, privatization is being looked to, not for those traditional reasons, but to generate badly needed immediate cash. This is occurring because the public sector is being squeezed by falling revenues (largely due to the recession and in some cases due to tax cuts) and rising costs (generally due to inflation). Here are two examples of privatization to raise immediate cash.

First, in 2009, the city of Chicago, desperate for cash to cover a budget shortfall, sold its parking meter revenue for the next 75 years for $1.2 billion. The private consortium of investors was led by the huge Wall Street financial corporation, Morgan Stanley (one of the companies responsible for the collapse of the financial sector and the recession that contributed to Chicago’s severe budget shortfall).

The deal will allow the private owners to increase parking fees substantially and parking rates in some neighborhoods have quadrupled. [1] It prohibits the city from any activity, such as building a new parking garage, that could be competition for the parking meters. The city has to reimburse the private owners for any lost revenue due to a street closing for repairs or a street festival. If a meter is out of commission for six hours, the city must reimburse the owners for a full day’s worth of revenue. In May 2012, the private owners had billed the city for $50 million for reimbursements for out of service meters and free parking provided to the disabled. [2]

Not only will this deal cost Chicago substantial money for 75 years, it also means it has given up the ability to make decisions about parking and its cost for 75 years. Furthermore, it appears to have in effect guaranteed substantial profits to the private investors, as there is no competition and little risk.

Second, Indiana received $3.8 billion in 2006 from an international consortium in exchange for the right to maintain, operate, and collect tolls for 75 years on 157 miles of Interstate 90 as it crosses Indiana. The 400 page lease agreement has limits on toll increases, requires the state to reimburse the private owners if tolls are waived during an emergency (such as a natural disaster), and covers details such as how quickly the consortium must remove dead animals from the highway. While the length of the agreement is indicative of both the thought that went into it and the complexity of such an arrangement, it is hard to imagine that every issue that could come up in 75 years has been identified.

In the short run, with the economy in recession and traffic down on the highway, it appears that Indiana taxpayers are coming out ahead. Indiana wisely used the funds for investments in infrastructure rather than short-term spending. [3] But it’s only six years into a 75 year lease and lots can happen over that time. For example, if traffic levels don’t increase and the consortium of owners goes into bankruptcy or defaults on their debt, what will happen? Could a bankruptcy court throw out the limits on toll increases?

Experiences with highway privatization in California, Virginia, and San Diego have all had significant problems. These privatization contracts are typically long-term, generally limit competition, and, therefore, result in significant limits on future public decisions and policies. [4]

A danger in these high-value, long-term privatization deals is that sophisticated investors and corporations will take advantage of government officials desperate for short-term revenue, who often don’t take the time or have the expertise to perform appropriate, long-term, cost-benefit analyses. A 75 year commitment clearly goes long beyond the longevity in office of the public officials who make the deal and it’s hard to believe that such a deal can be known to be in the public’s best interest over that time span.

“[P]rivatization can undermine good public policy and democratic decision making. Turning tax dollars and control of public services over to companies whose overriding incentive is to maximize profits can lead to long-term costs and sometimes devastating consequences.” (p. 4) [5]

Because of their significant impact on the public – on public services, on public policy and flexibility, on accountability, and on transparency – I would suggest that any privatization deal should require public hearings before (and after) the fact. Furthermore, those with a longer time span than the term of office of the person signing it should require super-majority approval (say 2/3) by the relevant legislative body. Privatization contracts of over 10 years should require a voter referendum with a super-majority (say 2/3) needed for approval.


[1]       Rusnak, K., retrieved 10/21/12, “Privatization plans lack long-term focus,” economyincrisis.org/content//privatization-plans-lack-long-term-focus

[2]       People for the American Way, retrieved 7/31/12, “Predatory privatization: Exploiting financial hardship, enriching the 1 percent, undermining democracy,” http://www.pfaw.org

[3]       Daniels, M., 5/10/12, “Indiana didn’t ‘sell’ its toll road,” The Washington Post

[4]       Dannin, E., 3/15/11, “The toll road to serfdom,” American Constitution Society (www.acslaw.org/acsblog/node/18553)

[5]      People for the American Way, retrieved 7/31/12,, see above

AN OVERVIEW OF PRIVATIZATION

ABSTRACT: Privatization of public services or “outsourcing” has been promoted for decades as a way to save taxpayers money, improve public services, and increase public sector accountability. A resurgence is occurring as the public sector is being squeezed by falling revenues and rising costs. In this environment, privatization is often looked to to generate badly needed cash immediately. As a result, privatization is big business these days.

As background for a detailed look at current privatization activity, municipal level privatization has been used significantly and studied quite extensively, especially for water and sewer systems and for solid waste collection and disposal. From 1997 – 2002, more services were brought back in house or deprivatized than were outsourced. Services were deprivatized because of unsatisfactory results. Most studies of water, sewer, and solid waste privatization (21 of 35) found no cost or efficiency difference between public or private delivery. The other 14 studies were split.

Competition and careful monitoring are required to obtain benefits from privatization and to ensure that profit maximization doesn’t result in a loss of quality. A review of privatization by The Century Foundation [1] states that “public monopoly or government regulation is a more effective approach to ensuring efficient service delivery than privatization or deregulation.”

The delivery of public services must incorporate the fact that citizens are more than consumers. They frequently want to be engaged and have a voice. Public services are not just part of a market but part of a community.

FULL POST: Privatization of public services or “outsourcing” has been promoted for decades as a way to save taxpayers money, improve public services, and increase public sector accountability. A resurgence is occurring as the public sector is being squeezed by falling revenues and rising costs, much of which are due to inflation. In this environment, privatization is often looked to not for the traditional reasons of saving money or improving services and accountability, but to generate badly needed cash immediately. In this environment, privatization of public assets (e.g., buildings, parking facilities, roads, and land), which has been used in the past to cover short-term cash problems, has taken on new importance.

The privatization resurgence is bolstered by rhetoric from the right, which favors smaller government, and by lobbying from corporations, which are always looking for new ways to make profits.

As a result, privatization is big business these days. Wall Street firms and the big management consulting companies have public sector or public private partnership business divisions to pursue privatization deals. Financial corporations are setting up “Infrastructure Funds” that create pools of money to buy privatization deals as investments. Over $100 billion is available to Infrastructure Funds run by large financial corporations such as Goldman Sachs and JPMorgan Chase.

As background for a detailed look at current privatization activity, municipal level privatization has been used significantly since the 1960s and surged in the 1990s. It has been studied quite extensively, especially for water and sewer systems and for solid waste collection and disposal. These studies have tracked privatization, the contracting out of services, and deprivatization, the bringing of services back in house into the public sector. An overall review of privatization of 67 basic local services with a focus on water, sewer, and waste services was conducted by The Century Foundation. [2]

Up until 1997, privatization of water, sewer, and waste services was growing, but from 1997 – 2002 more services were brought back in house or deprivatized than were outsourced. The reasons for deprivatization were tracked. In 2002, among 245 cases of deprivatization the following reasons were given, including multiple reasons in many cases:

  • Service quality not satisfactory                                            73% of cases
  • Cost savings insufficient                                                       51%
  • In house efficiency improved                                               36%
  • Problems with contract monitoring or specifications             35%

In summary, services were deprivatized because of unsatisfactory results. Furthermore, despite the fact the privatization is promoted as reducing costs and saving taxpayers money, most studies of water, sewer, and solid waste privatization (21 of 35) found no cost or efficiency difference between public or private delivery. The other 14 studies were split with 9 of the 35 finding private delivery cheaper or more efficient and 5 finding public delivery cheaper or more efficient.

The Century Foundation report notes that competition and careful monitoring are required to obtain benefits from privatization and to ensure that profit maximization doesn’t result in a loss of quality. However, it noted that in many cases, such as water and sewer services, there was no competition and privatization merely substituted a private monopoly for a public one. The report states that “public monopoly or government regulation is a more effective approach to ensuring efficient service delivery than privatization or deregulation.” (page 12)

The delivery of public services, even when privatized, must incorporate the fact that citizens are more than consumers. They frequently want to be engaged and have a voice in what, how, and the quality with which services are delivered. From a citizen’s perspective, more than just efficiency is involved; safety, reliability, transparency, and other values; local control; public accountability; and community identity can all be important. Public services are not just part of a market but part of a community.

Future posts will build on this overview and review specific examples of current and proposed privatization of public services and assets.


[1]       The Century Foundation describes itself as a progressive, non-partisan think tank, founded in 1919. It convenes and promotes the best thinkers and thinking across a range of public policy questions and produces timely and critical analyses of major economic, political, and social institutions and issues.

[2]      Warner, M., 2009, “Local government infrastructure and the false promise of privatization,” The Century Foundation, http://government.cce.cornell.edu/doc/pdf/Warner_2009_TCF.pdf