Why Government Privatization is an Abysmal Idea (in 30 seconds)

by: Matt Singer

Mon Feb 05, 2007 at 21:40:26 PM MST

Here you have private enterprises displacing government. Why? For the private sector efficiency, of course! But you don't actually get that efficiency. It's still a government program. Funding is still being determined by political support. The cash doesn't go to companies that can do a really good job, it just goes to companies that have political clout -- i.e. ones that recycle a share of their profits into campaign contributions. It's essentially the worst of both worlds, since you get the inherent problems of the public sector plus the need for owners to be taking a slice off the top in profit margins. It is, however, a very good deal for politicians interested in union-busting and for politicians interested in raking money in from government contractors. Shockingly, the GOP loves it.

The reality of the situation is actually pretty shockingly clear -- both from a rational and empirical standpoint.

The exception to Matt Yglesias' argument, of course, is systems that operate on vouchers or their equivalents. These maintain consumer roles and thus do introduce market competition.

The question -- in many cases -- is still over whether they work. Consider the voucher system in higher education -- Pell Grants and similar award systems. Many libertarians (the same people who often back vouchers, at least as an intermediate step) blame Pell Grants for higher education inflation. Whether right or wrong, they are correct that inflation is rampant in higher education.

But the market still does work fairly well. The United States, after all, does have the most exclusive colleges in the world (we also have many of the most exclusive primary and secondary schools in our completely legal private sector education system).

One of the reasons it works well, though, is that college students have a mobility that kindergartners generally lack. What kind of competition will exist to benefit the 6-year-old in Hysham, MT? My guess is: very little. Heck, Billings only has four high schools of any size. Most large Montana cities have fewer. Introduce vouchers and you'll basically get the same number of options, an increased amount of profit taking, and very little competition to induce efficiency increases. Meanwhile, unless the vouchers can be redeemed by home schoolers, the available options to parents will have stayed basically identical.

The "contracting out everything will save us money and improve service" is a canard that is, unfortunately, still all too widely believed. That there is virtually no evidence to back it up and a veritable ocean of evidence to the contrary (google 'Texas accenture privatization' and check out what you get back) does little to stop this little lie.

But hey, that's what a $300 million message machine and faith in the markets will get ya.