The Privatization Myth – The American Prospect

The Privatization of Everything: How the Plunder of Public Goods Transformed America and How We Can Fight Back

By Donald Cohen and Allen Mikaelian

New Press

For 40 years, both Republican and, regrettably, Democratic administrations have been turning over control of health care, public water supplies, infrastructure and transportation, criminal justice, education, prisons, parks, policing, sanitation, libraries, the weather service, and more to private companies. Donald Cohen and Allen Mikaelian’s The Privatization of Everything documents, in far more detail then has ever been done, this dismantling of the public sector.

In the privatizer’s worldview, this shift from public to profit-seeking private management will lead to cost-cutting and greater attention to customer satisfaction, reduce taxes, and shrink the size of government.

Cohen and Mikaelian simply and completely demolish these arguments. They cite numerous examples and studies showing that private-sector managers have no compunction about adopting profit-making strategies that make essential services unaffordable or unavailable to large segments of the population. A profit-seeking operation may choose, for example, not to provide health care to the indigent, or extend education to poor or learning-disabled children, or deliver packages to remote destinations.

In the quarter-century after World War II, the federal government sought to protect individuals against undesirable market outcomes, such as high unemployment, rising poverty, and falling real incomes. The government built highways and dams, conducted research, increased its regulatory authority across an expanding horizon of activities, and gave money to state and local governments to support functions ranging from education to road-building. The workforce became more productive and living standards rose evenly across the board.

By the mid-1970s, however, the U.S. economy went through a period of stagflation (simultaneous high unemployment and inflation). It is now clear that this had more to do with a dramatic increase in the price of foreign oil than with government overspending. But it led to a change in the public debate from the Keynesian presumption that government was essential to promote public works, provide economic security for people, and regulate the volatile capitalist economy to a view of government as “the problem.”

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When Ronald Reagan was elected president, economist Milton Friedman became the guru of the administration. Friedman explicitly rejected claims that “society has a duty” or that “government has a moral function,” advancing instead a view that “society is a collection of individuals … and that only individuals can have moral obligations.” Following Friedman, Reagan’s economic adviser Murray Weidenbaum issued new marching orders: “Don’t just stand there, undo something.” A central tenet of the “undoing” has been the privatization of government assets and services, which the Reaganites saw as part of the process of lowering expectations about what government can do, of redirecting political discourse from a vision of government as an instrument of economic development to an obsession with public-sector cost-cutting.

After 40 years of undoing—and in what is surely one of the defining characteristics of this period, Democratic president Bill Clinton did more for the privatization project than any other president—Cohen and Mikaelian point out that there are 2.6 times as many federal contractors as there are government employees, and an estimated $1 trillion of America’s $6 trillion in annual federal, state, and local government spending goes to private companies. Privatization has not really changed the size of government; rather, it has led to larger private government.

Some of the horror stories recounted in The Privatization of Everything:

  • The water rates in Apple Valley, California, whose water is privately controlled by a subsidiary of the Carlyle Group, were routinely 50 to 100 percent higher than the publicly owned water utilities of its neighbors. During the 2015 drought, Apple Valley water consumption went down but rates went up, while most residents in the neighborhood with the publicly owned water utility cut their water use and thus had lower water bills. The CEO of the privatized water company explained that “‘the reality’” of the water business was “‘with declining unit sales you almost have to raise rates.’” “The reality behind that ‘reality,’” Cohen and Mikaelian conclude, was that rates were raised “when times were good and when times were bad.”
  • In 2008, facing a budget shortfall, Chicago leased, for 75 years, its entire system of 36,000 metered parking spaces to a group of private investors led by Morgan Stanley for a one-time payment of $1.16 billion. The private investors have already earned over $500 million more than their initial investment with 61 years’ worth of parking meter revenues to go. Chicago will not only lose more than $1 billion over the course of the contract, but in a stunning example of private interest trumping what’s best for the public, until the contract expires in 2083 the city must pay the private investors if any action by the city, such as building bus or bike lanes, planting trees, or building housing, reduces parking revenues.
  • When Bill Clinton replaced Aid to Families With Dependent Children (AFDC) with a system of block grants to states, New York City hired a private company, Maximus, Inc., to get people off welfare rolls and into either jobs or job training. Maximus failed miserably. Less than 1 in 5 received any job training, only 8 percent of participants were placed in jobs—most of them low-wage, part-time, or temporary—and only 3 percent held those jobs after six months. Maximus was successful at kicking 76 percent of their clients out of the program for rule violations. In the privatized world of welfare reform, this counted as success. Maximus’s contract was renewed.

The Privatization of Everything is a sobering book. Forty years of promoting privatization and anti-government beliefs has resulted in a government that is, in Jeff Faux’s formulation, “damaged, demoralized, and distrusted.” Damaged because 40 years of privatization has resulted in the evisceration of state capacity. Demoralized because the talented individuals needed in government to address society’s significant challenges have been less likely to seek public employment. Distrusted because people don’t believe government helps them even when it does. Almost half of people who received such state benefits as home mortgage interest deductions, student loans, or the Earned Income Tax Credit reported that they had not used a government social program. And according to the Pew Research Center, public trust in government, despite a slight uptick since Joe Biden’s election, remains near the lowest levels since the survey began in the late 1950s.

The glaring weakness of the basic apparatuses of government was exposed when the coronavirus landed on our shores. The Trump administration’s response to the pandemic, in the words of Deborah Birx, the coordinator of the White House Coronavirus Task Force, “centered fully on unleashing the power of the private sector.” But the private sector was not set up to deliver public health, and, predictably, it didn’t. Meanwhile, for years funding had been cut for the U.S. Centers for Disease Control and Prevention (CDC). Most egregiously, the CDC’s Public Health Emergency Preparedness Program, the key financing mechanism for state and local public-health emergency preparedness, had been cut by a third since 2003. At local health departments, 55,000 jobs had been lost since 2008. We ended up with a private sector not set up to deliver crucial public goods and a public sector starved of resources. In consequence, the U.S. lacked basic testing capacity, and in New York City, the medical capital of the world, health care workers were wearing plastic garbage bags for protective gear.

One of the strengths of The Privatization of Everything is its insistence that privatization must be understood as a political strategy to shift power toward unaccountable business interests and away from governments, communities, workers, and citizens.

So while privatization often reduces wages of public-sector workers, it is even more a matter of busting the political power that unionization gives public workers. The public sector is the last stronghold of a trade union movement that delivered a fair share of America’s bounty to its middle class until it was pulverized into submission by anti-union companies and a labor law that prevents workers from forming unions. Privatization is an attack on that social equity.

Cohen and Mikaelian conclude that it was politics that gave private interests the power that they now have, and politics can reclaim that power for the public. The Biden administration’s aggressive policy to reinvigorate government—by expanding public provision; supporting public investment in clean energy, care work, and in other industries; issuing smarter regulations and more taxation on corporations and on the wealthy—is a sign that most of the Democratic Party is moving past the disastrous 40-year consensus on privatization. But as a razor-thin congressional majority and unanimous Republican opposition show, it is still a struggle.

Cohen and Mikaelian have written a seminal book on how government went wrong in the age of Reagan—an essential resource for future reformers on how not to govern.