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Privatization holds false promise for public sector

By ROBERTA LYNCH

Rarely a week passes without encountering stories about the shortfalls of one private business or another. The problems can be as minor as lengthy lines at the bank or as dire as exploding gas tanks. They include defense industries that defraud the government of millions and chemical firms that befoul the waterways.

Yet, whatever failings occur are attributed only to the business at issue, while the private sector continues to be heralded as a model of efficiency and quality.

The opposite is true of the public sector. Because government is so vast and undifferentiated in the public mind, the average citizen readily projects the shortcomings of any one political body onto the totality of government.

Moreover, because government has little in the way of an advertising budget, there are few reminders about the taken-for-granted programs that are daily success stories for millions of Americans — firefighting, waste treatment, water purification and national parks, to name a few.

On this political landscape, as the myth of an inherently efficient private sector collides with the myth of a massively deficient public sector, the idea of privatization is steadily gaining ground.

But while there can be no doubt of the urgent need for greater efficiency, less bureaucracy, and higher quality throughout the ranks of government, there is no reason to believe that privatization provides a surer route to these goals. In fact, it may offer more perils than panacea.

First, privatization is nothing new. Government already spends billions on subcontracting. In some cases, it's done for sound fiscal or policy reasons. Too often, however, it is simply a means to evade public accountability. The media exert far less zeal in scrutinizing private contractors. And if services deteriorate, political leaders are more insulated from responsibility.

Second, competition is supposed to be the watchword of privatization. But in reality, there is little or no existing market for many services and thus few bidders. Often private firms will initially "low-ball" their bid. Once governments abandon their own capacity, they become dependent upon these firms. In short order, costs begin to balloon and the government has nowhere else to turn. The U.S. defense industry — with its notorious $90 wrenches — is the classic example.

Third, privatization without adequate oversight increases the potential for corruption. Most of the major government scandals of recent decades have involved graft in the awarding of contracts. Too often such contracts are awarded out of the public eye, so that political criteria can override professional standards.

In order to make subcontracting worthwhile for the private firm, there must be significant profits. And in order to make it reliable for the public entity, there must be significant monitoring. Both add considerably to the cost. So where are privatization's promised efficiencies?

There are two traditional means of achieving major productivity improvements: technological advances and reductions in employment costs. Government can — and often does — purchase the same technology available to private businesses. But many government functions are more inherently labor-intensive (teaching, policing, social work) and thus less amenable to technological innovations.

This is why so many contractors, whatever their rhetoric of efficiency, ultimately rely on reducing employee wages and benefits. An analysis of private agencies with which the state subcontracts for care of the developmentally disabled found that the wages paid were only half those of public employees performing comparable work, so low that many of the private workers were eligible for Food Stamps.

And in a recent article on the growing private prison industry, one of its chief officials acknowledged that its savings all came from paying prison guards less than their public sector counterparts.

Historically in our nation we have looked to the public sector to set a standard for fairness. When we have been able to express our will through the democratic process, we have opted to create a space for openness, accountability and equity, rather than relying solely on the stark "logic" of the private marketplace. The regulations that govern the provision of public services, as well as the (merely) decent wages and benefits paid to public employees, represent this effort to maintain some counterweight to prevailing market forces.

We live in a time in which corporate downsizing, a growing reliance on temporary workers and a decline in average real wages have led to widespread personal insecurity, making it ever more difficult for families to make ends meet. It would be both tragic and ironic if our only response to these alarming developments is to say that the public sector should emulate private sector practices. Unless we insist that privatization meet the public sector's more equitable standards, we will be rushing ever faster down the path to a divided, frustrated and low-wage America.

Roberta Lynch is deputy director of the American Federation of State, County and Municipal Employees, Council 31.

10/January 1995/Illinois Issues