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Play by the Rules: The Issue of Private Contracting of Public Services
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Andrew Vaz
October 19, 2017
Imagine if you were to wake up one day in a world where you have pay to inhale the air all around you. Sounds extreme, yet, the commodification of our necessities is a reality and if there is a way to capitalize on our public resources, private companies are keen to take control of those services and extract money from consumers. While I find it unethical to privatize public services, public administrators are more likely to reach out to private contractors for their services to cut costs. Despite this, public administrators also realize the dark truth of privatization: private contractors never play by the same rules as public entities.
When I was working for the Water and Sewer Department in my home town a
few years ago, I obtained an appreciation of the quality of service the government provides for its citizens. I was never concerned about the backlog being created as the local government had a monopoly. There’s the argument that shift from public to private management is so profound it will produce a panoply of significant improvements: boosting the efficiency and quality of remaining government activities, reducing taxes and shrinking the size of government. However, I disagree. I do not want to shrink the size of government; this idea would leave citizens in dark and the whims of private companies who don’t serve the interest of the people. As well, what evidence has there been to show that privatization has made other government services more efficient? Finally, reducing taxes is never a priority of a government trying to reduce its debt. Taxes need to be increased and the majority of citizens in the United States are willing to pay more in taxes.
Let me expand on these points: when it comes to efficiency, providing a service requires its management to be aware of its target population and its needs… private sector managers are only interested in profit, which doesn’t include caring about the needs of the people. An example is any profit-seeking operation that may not, for example, choose to provide health care to the indigent or extend education to poor or learning-disabled children. According to the Harvard Business Review, efforts to make such activities profitable would quite likely mean the reintroduction of government intervention — after the fact. The result may be less appealing than if the government had simply continued to provide the services in the first place.
What is essential must not be privatized; instead, what government agencies should be striving for is private-public-partnerships (PPP). I have written on this concept in past; I feel strongly about corporations working in tandem with the public sector, not against it. The benefit PPPs have is contract periods of 25 to 30 years or longer. Financing comes partly from the private sector but requires payments from the public sector and/or users over the project’s lifetime. What did the private partner accomplish? The private partner participates in designing, completing, implementing and funding the project, while the public partner focuses on defining and monitoring compliance with the objectives. The most important item of PPPs is that the risks are distributed between the public and private partners according to the ability of each to assess, control and cope with them.
Going forward, public administrators need to do more to preserve our public services by working with the private sector. Instead of giving services away, government should develop relationships with corporations to enhance technology that would improve the quality and delivery of services to the public. What I can see happening in the future is the development of partnerships that will flourish across all levels of government with the private sector; this will be an opportunity to create new jobs and more efficient ways to deliver services and product to our communities that we have never thought would be possible. More people will be affected by a partnership than just the public officials and the private sector partner. In addition, those employees, the portions of the public receiving the service, the press, appropriate labor unions and relevant interest groups will all have opinions, and may have misconceptions about a partnership and its value to all the public.
This article is not meant to be political; if it is interpreted in that fashion this couldn’t be further from the truth. It is about addressing who gains and who fails with public services going to the private sector: the public.
Author: Andrew R Vaz, M.Sc., M.P.A. is a doctoral student in the public policy and administration program at Walden University. He is a graduate of the Master of Science in Criminal Justice and Master of Public Administration double master’s program at Florida International University. He can be reached at [email protected].
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Brynne VanHettinga
October 20, 2017 at 2:42 pm
Thank you for this well-thought article.
Our society has been so infected with primacy of the market ideology; i.e., the worldview that private markets are more efficient, naturally self-correcting, and always and everywhere lead to socially beneficial outcomes. Because private markets are presumed productive regardless of actual evidence, we often fail to analyze where problems could arise.
Lack of transparency. Most governments are subject to some form of federal and/or state Freedom of Information laws and requirements. As more public services become privatized, we the people will have less information about how and for what our tax dollars are being spent. As services are outsourced to lower cost (and possibly overseas) labor, it is easy to see how either quality or scope could be reduced in order to keep costs in line. Moreover, it will become more difficult to “follow the money” across multiple layers of contracting jurisdictions.
Perversion of objective. Because the ultimate objective is profit, the real objective that the activity is supposed to serve is likely to be compromised. We are seeing this with private prisons. The problem here is not so much that offenders are housed in substandard conditions (which could violate Constitutional norms), but that there is no effort to rehabilitate and reintegrate them into society, in conjunction with efforts to “criminalize” all sorts of behavior (particularly as it applies to lower-income individuals). The objective of private prisons is to both keep the offender pipelines full and promote a revolving door of recidivism, which only costs the rest of us more in the long run. We are also beginning to see the same effect with military operations and disaster recovery. As more of these resources come under the command of private profit, military adventurism becomes an imperative, and disaster relief in areas with underdeveloped infrastructure more problematical.
Moral hazard. There is no better example of this than the banking and financial services industry. It began with the passage of Garn-St. Germaine in 1982, which was shortly followed by the savings and loan crisis of the late 1980s and early 1990s. We obviously did not learn our lesson from this. The 1999 Gramm-Leach Bliley liberalization of the industries connected to Wall Street was followed by the collapse of the mortgage lending markets and ensuing world-wide Great Recession. The irony is that those entities who were once considered too big to fail are now even bigger and more powerful than they were before the crisis. The foxes are in charge of the hen-house, and they view the rest of us as easy dinner.
Your suggestion to provide public services in the form of public-private partnerships re-introduces the way national public infrastructure was constructed in the middle to late 1800s. Governments granted charters to private entities (corporations and trusts) to assist with building roads, dams, railroads and other large-scale capital projects. Corporate power (including the ability to amass great wealth) was limited under the (mostly state-issued) charters in accordance with the specific needs of the project at hand. As we know today, corporate powers are nearly unlimited and practically unconstrained (due to their power to influence regulatory legislation). Additionally, corporations (now recognized as “persons”) have more legal rights than the employees who work for them.
Perhaps the biggest threat of privatization is not so much that it expropriates collective production while externalizing risk onto the public at large, but the threat it poses to our democratic and civil society. We are already seeing more people (who will have no choice but to work for the lean and mean privatized companies, increasingly without benefits such as health care, pensions, or paid time off) becoming precariatized and disengaged from civic participation. The new precariate is barely able to meet the necessities of life in a modern society—not poor enough to qualify for ever-more-stringent public aid but nevertheless living in a state of perpetual insecurity and anxiety about the future.
Concentrations of wealth and power are dangerous in any form, whether it be “big government” or global multinational corporations. If we as a society are going to permit such concentrations (because of efficiency, economies of scale, the provision of “public goods,” or other rationale), we must also include mechanisms for independent public oversight and control. Privatization will always attempt to circumvent this.