The truth about privatisation

Privatisation of public property and functions has been an article of faith among neoconservatives for a couple generations now, but it’s only been recently that moderates and liberals have finally started to push back. In the video above, Robert Reich talks about some of the negative consequences that come from privatising government services. He’s absolutely right, but there’s even more to it.

Reich’s video begins by talking about about things that the public built in the USA, and the same things were done in countries all around the world, including New Zealand. While he points out, correctly, that sometimes privatisation or, at least, public-private partnerships, have worked, his five rules for privatisation are sound ways to avoid mistakes.

The main problem with privatisation is that it tends to socialise risk and privatise profits. That means that the taxpayer assumes all financial risks and the private corporation gets all the profits. This is often done with taxpayers paying a subsidy to private companies, through things like guarantees of minimum profits, or responsibility for building and maintaining physical infrastructure. In such cases, the private corporation runs the service and takes all the money as profits, regardless of the quality of the service or how much it costs taxpayers on top of the taxes they paid in the first place. Taxpayers pay at least twice for the service, and private corporations add nothing but still collect the profits.

Even so, in some cases it may make sound business sense. There can be things that a government entity couldn’t run well, efficiently, or as economically as an appropriately monitored and regulated private corporation could do (pubic transport is often an example, though not always). The problems are that, first, just because a business is private doesn’t automatically mean it’d be able to provide services better, cheaper, or more efficiently than the government could. Second, even if it theoretically can, it must be closely monitored and regulated to ensure they’re living up to their end of the deal, acting within the law and in accordance with public policy, and that taxpayers really are getting good value for money. This part is often—usually?—missing.

There are some things that I believe should never be privatised, ever. Prisons and jails are top of my list because NO ONE should ever profit from denying citizens their human rights, liberty chief among them. Police power is a related one because a company has a financial incentive to arrest people for minor (or faked…) crimes, while public police forces have an interest (theoretically, at least) in public order and safety, not persecution for profit. National defence is another, because no country should hire mercenaries or paid assassins to do its dirty work for them. National highways are still another: People must be able to move around without paying tolls to private companies. Public education is yet another: If it’s not public, it should be private—no socialising risk and cost while privatising profits on the backs of kids.

Privatisation battles naturally involve people’s ideology and philosophy, but they should also be about rational evaluation of business cases. When they are appropriate, they must be closely monitored and regulated. If all of that happens, then privatisation can sometime be okay. But they aren’t holy or even necessarily good, and that’s what we need to be clearest about.