Thursday, July 5, 2012

Why privatization of public services is bad for the economy

     Living in civilization makes necessary the existence of certain services.  To live comfortably and with relatively low levels of disease, we must have garbage removal, sewage systems, and clean water supplies.  To enforce the laws we create to keep society civil and safe, we need law enforcement.  To protect our homes from fires started from careless people, arsonists, or even nature, we need fire protection services.  Expand the list or shorten it, but we agree to pay for certain services in order to maintain a civil society.  Some people believe that the free market should provide these services; they think that private entities can do the job better than government-run bureaucracies at a lower cost to the taxpayer.  However, the movement to take these services out of government hands and put them into the hands of the market has had several negative impacts.

    First, whenever a private company takes over a public service, the workers have been laid off, then either rehired at a lower wage with no benefits, or replaced with workers who would take a lower wage.  In both cases, the difference in money these workers would have received no longer gets spent within the community.  Some of these workers may not be able to maintain a home anymore, or might have to move to find work with equivalent pay.  This money no longer goes to the local restaurant, bar, convenience store, or grocery story they frequented.  They can't afford the day care or babysitters they could before.  Because their benefits are gone, we have to pick up their health care costs if they have a medical emergency, because it is not likely that they can pay case for these services.

    Secondly, the difference in pay the former government workers would have received now gets routed to private entities.  In many cases, these entities are corporations with executives and shareholders.  These executives and shareholders very likely do not live in the communities where their companies operate.  In some cases, these corporations even have foreign owners.  For example, the City of Southfield, Michigan, privatized the transportation of children to the local schools.  This company, Durham School Services, is a subsidiary of National Express Corporation, which is a publicly-traded company.  This company is in turned owned by National Express Group, which is a UK company.  As such, the City of Southfield saved a little bit off the bottom line by having Durham School Services run the school buses, but they funneled money that would have gone to government-paid workers into the hands of executives and shareholders who certainly don't live in Southfield, and some of whom are not even in the United States.  Other examples of publicly-traded companies that run public services include the Corrections Corporation of America (American corporation) and the GEO Group (multinational corporation), who run prisons; Waste Management, Casella Waste Systems Inc, Republic Services, and Safety-Kleen Inc, who run garbage collection; National Wildfire Suppression Association, which has publicly-traded corporate sponsors and is involved in privatization of firefighting; and Charter School Management Corporation and National Heritage Academies, who run charter schools, which seek to replace public schools.

    Finally, privatization of public services creates one of two situations: the city contracts with one company, creating a private monopoly, or the city allows competition.  The latter situation appears rarely with privatization.  In some cases, this competition appears to be good; it allows the cost of services to go as low as possible.  However, this competition is often a race to the bottom with workers' wages, and the quality of services can be a concern.  Additionally, competition in the area of garbage removal can be detrimental to a community.  Anyone who has private garbage removal knows how many trucks come down the street on trash day.  Imagine if your neighbors choose a myriad of garbage removal services.  The trucks from each company would come down the street endlessly.  These large trucks tend to be tough on the pavement on neighborhood streets, and the presence of all that traffic makes it unsafe for children, pets, and pedestrians.  One community in Arizona found this out to their dismay, and they ended up contracting with a single service again.

    Privatization has the potential to be good.  If the private company is local, the money involved stays in the community.  If the company pays workers a living wage and provides benefits, local entrepreneurs and citizens win.  However, these ideals are never the case, or so close to never that they are unheard of.  In most cases, as demonstrated, the money gets funneled out of the community and into the hands of the few.  It is taken out of the hands of many people who will use it to buy everyday goods and services, with some minor luxuries if they have disposable income, and into the hands of a few, who will not spend as much on the everyday goods and services--because they aren't going to buy extra toiletries and food for the heck of it--and who won't be doing it in every community where the privatized public services operate.  These services are natural monopolies, as competition sometimes makes it more difficult or even unsafe to deliver the services people need, or can lower the quality of services by cutting corners.  Natural monopolies should be run by the government, not the free market, because the free market does not have the best interest of citizens at its heart.  Private companies have the interests of owners, executives, board members, and investors in mind, not the good of your local community.

No comments: