I put “privatization” in quotes because it is really corporatization, and quite frankly is a much better term for the further theft of taxpayer dollars for the well connected corporate class.

The arguments that the right and the pro-corporate/”free market” crowd make are in direct conflict with the entire rationale for privatization corporatization of public services – regardless of whether it is the school system, toll collecting, motor vehicle inspection (all of which have been done/proposed in New Jersey), or taking it a step further, the fire department. It goes something like this:

Corporations are supposed to maximize profits and their responsibilities lie with their shareholders and increasing shareholder value. So, cutting corners (BP, anyone), using cheaper materials (as we have seen in building houses as compared to decades ago, or even in household goods that break down after a few years) or reducing quality control in order to make more cheaper or do more with less. Even if this isn’t all willful and there are just fewer people doing the job, there is inherent quality control issues from less people doing more. All in the name of maximizing profit and being accountable to shareholder value.

Contrast this with the basic premise of public service – to serve the public. There is an underlying goal of making sure that the public receives the services that it needs as opposed to the services that a private company wants to deliver based on cost and interpretation of the contract, regardless of needs.

Now, let’s take the argument for corporatization of services – it goes something like this:

The public (schools, garbage removal, government) is full of waste and bloat and there are too many layers and too much money being spent to provide services. Therefore, it must be put out to bid, so private companies can compete for these services – usually based on the lowest cost bid (if there is a competitive bidding process – which of course, would at least ensure that an overbudget sweetheart no-bid contract wouldn’t be abused, but that is another issue altogether). So let’s just assume that there is a competitive bidding process for the purpose of this argument. In theory, public employees would be fired, department costs reduced and the cost of “government” would decrease – assuming that the cost of corporatization is even lower than the cost of keeping the services publicly run.

Remembering the old adage, “you can only have two of the following three things: (1) quality, (2) timeliness and (3) inexpensive”, the arguments of corporatization and the “corporate priority manifesto” will ultimately lead one of two things – neither of which is good:

  • A lowball bid will get the job, and in the interest of maximizing corporate profits, a subpar effort would generally be undertaken, as “precious corporate resources” wouldn’t want to be wasted on an effort that doesn’t generate as much profit as other initiatives; or
  • Bloat, waste, inefficiencies, mismanagement and overruns will increase the cost of the corporatization, or even worse, lead to a stalemate and potential disruption of services as a new agreement is negotiated.

The two ideals can’t mutually coexist. Either a corporation is interested in maximizing its’ profits and shareholder value, or the pro-corporatist argument is a fallacy. And if the interest is in maximizing profits, then doing the work that is in the public interest would only work if that also serves to (1) reduce the overall cost and (2) happens to also meet the goal of maximizing corporate profits and value, in which case it really isn’t serving the public good.

Corporate profits and public service are at odds with each other at the very core as the primary driving force behind these goals. And that’s where the argument for corporatization of public services falls on its face.

About the Author

Adam Lambert

9 Responses to The basic fallacy of “privatization”

  1. Michael Leffew says:

    Where can I find this pro-corporate/”free market” crow.

  2. Annette Bellacosa says:

    I recently was speaking with some friends about what is going on in our country. It became clear to me that we are not really living in a democracy. It is now a “corporatocrocy”. My newly coined word for the state of our nation. The corporations have taken over and the middle class is slowly disappearing. It is very, very sad.

  3. Adam Lambert says:

    yay….Annette is posting a comment :-)

    Even though it is a sad (but true) observation….

  4. Chip Wagner says:

    Adam, from the structure of your argument, I would guess you have never actually worked in the private sector. But even assuming you have, you are missing two huge considerations: productivity, and customer service. Improved productivity by firms that are able to specialize, innovate, leverage scale and invest in technology is what enables many private firms to offer superior quality and higher service at a lower cost than government entities (think UPS and Fedex vs. USPS. And the customer service is simply a concept that is does not exist within the monopoly structure of most government agencies (think IRS and DMV).

    • David Kaib says:

      Chip, Adam may or may not have worked in the corporate sector (I find it off to speak of gigantic collectivities as “private”) but comparing stereotypes of bad government agencies with stereotypes of good corporations isn’t logic. (Also, the idea that everyone who has experience X believes Y is almost always false.)

      I’ve used good and bad DMVs, rarely been disappointed with USPS, and sometimes been disappointed with UPS. The magic of the market depends on assumptions that rarely exist anywhere outside of economics textbooks.

      One more thing – if the consumer is a state legislature or Congress, then the corporation which benefits from corporatization (great term for this, bu the way) doesn’t need to win over citizens. And the only way to believe they will is if citizens complain to their legislators who act on their demands -i.e. politics. So what role is the market playing here? Either politics works and we don’t need it, or it doesn’t and the market serves to enrich corporations and legislators at the citizens’ expense, who don’t figure in the demand curve.

    • Adam Lambert says:

      actually, Chip, I am a CPA and spent virtually my entire 19 year career working in international accounting firms – advising non-profit and for profit entities in a number of areas.

      I have seen the internal issues and challenges, which are different for both, and quite frankly, it is funny that you mention customer service (outsourced to India), which I can cite many examples of very poor customer service with (1) credit card companies (2) insurance companies (3) banks and (4) consumer product companies.

      Also, the USPS is not a public government entity as you cite – it is a public/private entity. But that being said, I’ve had things lost by FedEx, I’ve had UPS damage goods delivered to me as well.

      I also work with the IRS on a number of matters for clients, and have had some very positive experiences (as well as negative ones).

      So, I am going to have to completely disagree with you here – and with the experience that I’ve worked in the for-profit sector my entire career and with literally hundreds of for profit and non profit entities.

  5. Dwight Holmes says:

    Let me know when UPS or FedEx can deliver a letter from my home on the east coast to Montana, usually in 3 days, for 44c – along with a whole crappile of junk mail for pennies apiece.

    USPS has to deliver everything to everybody at the same cost regardless of distance. As it should be.

    Public entities have to serve the entire citizenry. As it should be. Unless we make our *public* entities as strong as possible, all of us will suffer the consequences that we see quite visibly in our society already, borne of egregious levels of ever-increasing inequality, on a scale unimaginable even 30 years ago.

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