Friday, February 2, 2018

Government privatization of services doesn’t only fail in the United States as experience of Great Britain is demonstrating

By Marc Jampole

The New York Times is giving us new evidence that privatization of government services is a failed concept. The Times reports that Great Britain’s decades-old experiment with privatizing government services is failing. Privatized facilities for the elderly and the disabled have run into a slew of abuse charges in the recent past. Moreover, a report by the British government found that over the next 25 years schools could cost 40 percent more, and hospitals 70 percent more, if run by private firms instead of through the government. Sounds like a typical privatized American prison, which costs more to operate than the government facility it replaced.
Why anyone ever thought that privatization of government services would lower costs and improve quality is beyond comprehension. When the government does something, its chief concerns are quality of service and cost to taxpayers. But once a private company gets involved, another factor enters the decision-making process: profit, which in the private sector is primarily split between owners and senior management. That profit has to come from somewhere, and it does: from the total pool available for providing the service—from salaries, equipment, supplies, transportation and facilities. Whatever the money set aside to provide the services, the cut given to profit will diminish it.
But wait, privatizers say. The private sector will run things more efficiently.
But how? Through economies of scale, which assumes that many companies will have the purchasing power of the federal government or most states. For the most part, that’s just not true. And in those rare cases in which a large private sector business might have an edge in purchasing supplies or maximizing the productivity of equipment over a local government, that government can always band together with other municipalities to buy supplies or share technology and staff.
As it turns out, it’s not economies of scale on which privatizers depend, it’s cutting the costs of labor. Typically, virtually all employees of privatized government services receive lower compensation than their government paid government. Why? Because privatized employees generally aren’t in unions, while government employees are often unionized. So what, you might ask? Who cares how an organization splits the pie, as long as the service is provided at a high level of quality and costs taxpayers as little as it has to. There are unfortunately two flies in this ointment: 1) Paying lower salaries will attract less qualified employees; 2) Cutting the salaries of large numbers of people—unionized or not—drives down the entire wage scale of an economy, which leads to all the problems that inequality of wealth brings, including an increase in asset bubbles and recessions, a decrease in the possibility of individuals moving up the income ladder and anti-democratic distortions to the political system.
(The exception to the rule that a privatized worker will make less than a government worker is the military, for which privatization brings on other problems such as a lack of loyalty of the mercenary to the values of the U.S. armed forces and pressure by privatizing lobbies to instigate or continue wars so that the profit train keeps running.)
But wait, privatizers say. The private sector is more likely to innovate and those innovations will lead to higher quality and lower costs. That’s not the way it has worked out in real life. In fact, when researchers Christopher Lubienski and Sarah Theule Lubienski ran the numbers, they found that one of the major reasons public schools outperform private schools (when adjusted for poverty and disabilities) is that public schools are more innovative, introducing new teaching techniques and technology than private schools. (The other reason, FYI, is because public school teachers are more experienced and participate in more continuing education classes than private school teachers. Makes sense, since paying more attracts better employees—that’s the American way!—and if private schools can cut teacher professional development, they can produce more profit.) No one has found any innovations at private prisons, except perhaps in the area of information technology which would occur at the governmental level, too. The privatized section of the armed forces has access to all the advanced technology they want—all developed by the U.S. military!
But wait, privatizers say. Privatization ends the special interest group politics surrounding government programs. That assertion is also belied by the facts. What happens in the real world is that the industry offering the privatized services becomes another special interest that finances and influences politicians. Teachers’ unions lobby for higher salaries and smaller classes, both of which lead to better outcomes for students especially in the elementary school years, at least according to the research. The prison industry lobbies for longer prison sentences, high bails and round-ups of undocumented immigrants, all to fill their jails. The defense industries lobby for higher military budgets and more military excursions. For those dear readers who don’t see the painfully obvious difference, let me explain: what the teachers want helps society; what private prisons and military contractors want does not.
But wait, privatizers say. The private sector always does it better than government by definition. Now that’s just a lie, as a landfill’s worth of evidence demonstrates. All we have to do is compare the cost and outcomes from the American system of healthcare insurance and delivery to those of every other western democracy, all of which have one form or another of single-payer healthcare. We rate first in costs and close to last in infant mortality and life expectancy. BTW, some nationalized healthcare systems like Germany’s do find a place for private, highly regulated health insurance companies. Not surprisingly, the most nationalized part of the American system—Medicare, Medicaid, the Veteran’s Administration before Bush II and Republicans gutted its budget—do the best job on costs and quality.
Is it possible that government control or ownership works best for the delivery of all goods and services? Based on the evidence of the Soviet Union and its satellites, it would be hard to make that assertion.
On the other hand, it seems that many types of industries seem suited to government control—certainly education, prisons, the military and probably healthcare. One key similarity of these enterprises is that they require large numbers of people who interact intimately with those served. While a telecommunications company or a solar panel manufacturer may require thousands of employees, technology, facilities and equipment are at least as important to the business as people. A phone company sells phone service using phones over landlines or on wireless frequencies. A school may use computers and science labs, but it sells teachers and teaching. A military sells armed forces (although modern warfare has increased the military’s dependence on capital goods more).
Another similarity of the industries that have seen disastrous results in privatization (or in the case of education, merely mediocre results) is that they all involve the entire public and the public good. No society since about 1850 can survive without universal education and literacy. Everyone needs healthcare. We build prisons and maintain armies to protect everyone. One can make a case that everyone needs electrical, telephone, water and natural gas service, too. Evidence is mixed as to whether government or the public sector most efficiently delivers these capital-intensive utilities, but we do know that when privatized they always require a lot of regulation to make sure that everyone has cheap, ubiquitous and reliable access to them.
A final similarity I see in the industries for which past experience demonstrates that government control beats privatization is that they are either mature industries, meaning that the market will not increase for their services except through population growth; or industries that it is the public interest not to grow. We are certainly better off when we have less need for prisons and the military.
I suspect that a whole lot of industries would be better off if they were nationalized. Of course I do, I’m a democratic socialist. But the experience in the United States and elsewhere else suggests that even the most extreme free-market conservative should see the benefit of centralized public education, prisons, healthcare, military, mass transit, roads and other services that governments routinely provide in most western nations. Except, of course, those right-wingers who hope to profit from privatization; or do not believe that rich folk should be taxed so that everyone can enjoy the service in question, e.g., affordable and high quality education and health care, and hope to use privatization as a Trojan horse to achieve that end.

Monday, January 29, 2018

Four decades of the politics of selfishness has turned America from a “winner take more” country to a “winner take most” country

By Marc Jampole

In reading After Piketty, a collection of essays by leading economists in response to Thomas Piketty’s seminalCapitalism in the 21st Century, I ran across the expression: “winner take all” economy. The “winner take all” economy describes an economy in which a very few people get most of the income and therefore accumulate most of the wealth, kind of like today in the United States. More accurate perhaps would be to call it the “winner take most” economy, since our system of compensation, taxation and government benefits leaves scraps for the upper middle class and breadcrumbs for everyone else.
The “winner take most” ideology is a harsh one for several reasons. On the most obvious level first, it creates a society in which there are winners and losers, and proposes to reward winners and make losers suffer. “Winner take most” ideologues typically attribute strident moral values to winning and losing. Winners deserve everything they get because they worked hard and are more talented, forgetting that people do nothing to earn the talent with which they are born, that much of “winning” results from the luck of having connections or money, and that others may work just as hard for less reward because they don’t have the connections or have less appreciated talents. Besides glorifying the rich, “winner take most” ideologues often demonize the poor. Not only are they losers—a negative attribute—but they’re losers for a reason. This view neglects both the importance of luck and the great costs extracted by having to deal with food, housing, education and other scarcities. My metaphor for summing up the importance of luck is to imagine Willie Mays turning 20 in 1850 instead of 1951.
Behind this harsh view of society as a human jungle rests the idea that everything can be reduced to the brutally immoral lowest common denominator of money, even self-worth and morality.
People like to compete and to win. There are winners and losers in wars and games, which are civilization’s sublimation of the urge to wage war. The pursuit of winning often leads to new knowledge and improvements in how we play in both games and real life. For example, Babe Ruth created the upper cut to get an edge—the home run—that helped his team to win at about the same moment in time that Henry Ford reorganized production to lower the cost of his cars and thereby sell more cars than anyone else. It feels good to compete and it feels better to win. A less crass, less celebrity-addled society in which civic virtue and not private greed is the primary value may not have such a clear divide between the winners and everyone else, but it nevertheless has winners who enjoy more material possessions and greater recognition of their worth as individuals.
The question therefore should not be whether creating a society of winners and losers is good or bad. The question should be: how much do winners and losers deserve? A slew of studies have shown that the top one percent and the top one tenth of one percent of income earners take a far larger share of income and wealth today than in 1980. The Congressional Budget Office, for example, estimates that since 1979, the income of the top 1% has grown by 275% before taxes (and 314% after taxes). By comparison, the income of the next 19%, the middle 60% and the bottom 20% have grown by 68% (73% after taxes), 38% (43%) and 41% (44%), respectively. Piketty shows that wealth has also skewered to the top 1% over the past 40 years, the share of one-percenters rising from 33.5 percent of all capital in 1979 to 54 percent in 2010. If you break out the top one tenth of the top one percent, the increase in wealth and income since the election of Ronald Reagan is even more extreme. Some studies conclude that these people got more money because they earned it by being better or more productive at what they did. But as Piketty and other economists point out, the top 1% and .1% are not dominated by the LeBron James and Bruno Mars of the world, but by owners and operators of and investors in businesses who have taken advantage of changes in technology, tax laws and business customs to increase their share of the pie through greater profits, or “rents” as economists like to say. All have benefited from a political culture that has continually cut taxes on the wealthy and slashed government services and benefits to everyone else over the past four decades.
We have turned America, once a “winner take more” economy, into a “winner take most” economy.
Perhaps it’s because I have always been an avid game player and my son participated in many games and sports growing up, but when I reflect on whether we should as a society actively seek greater equity in income and wealth, I think of the concept of “participation” trophies, which are essentially keepsakes of having participated and not done well in a youth competition.
A few years back, the participation trophy was a minor motif in the mass media for a few weeks, as shrinks, economists, public intellectuals and pundits opined about the so-called danger of awarding a trophy to every child. Instead of bolstering the children’s self-esteem, many thought participation trophies made the children feel entitled to rewards and contributed to making them soft mentally and emotionally—kind of like the “snowflake” that is now a derogatory term for someone too sensitive to stand up to the pressures of the real world (of course, as defined by the accuser!). One female teenage athlete’s opinion piece in the New York Times in 2016 condemned participation trophies for making everyone believe they’re a winner, when in real life, there are few winners. Interestingly enough, a Google News search for “participation trophy” reveals that over the past year, only professional athletes have used the term in the mass media, always in the derogatory sense of labelling someone as the loser or potential loser of a competition.
Clearly these comments represent the views of winners. The worst paid player in the major leagues will make $545,000 a year in 2018 (or roughly 5 times the annual salary of Mickey Mantle and Willie Mays—the two best players since World War II not tied to steroids), so even the worst players on the last place teams are “winners” when it comes to harvesting the rewards of society.
When first encountering participation trophies in the mass media, I remembered that in the 1990s organizers of the chess tournaments and baseball leagues in which my son participated often gave participation ribbons. I liked the idea of ribbons because it rewarded kids for their hard work and gave them something to commemorate the season or tournament. I wondered though if the trophy was going too far. One trophy per kid certainly raises the organizer’s budget, which might lead to an increase in entry fees. To have a truly open tournament or league, fees have to be low enough for most every family to afford and needed to include the possibility of scholarships of free entries. Of course, an organizer could save money by making the winners’ trophies less elaborate. At the time, I didn’t recognize that being okay with ribbons but not trophies also represented the winners’ viewpoint.
Youth chess tournaments have a complicated method to reward a wide variety of trophies and ribbons. A tournament of 250 children might have 10 sections based on chess ratings. Every section awards three to five trophies to the top finishers, plus other lesser ribbons. There is also a school team competition that combines scores in various sections, usually won by schools that bring along a large number of bad chess players. Because there are so many sections, everyone has a chance to win. As a chess parent, I liked this approach because it gave so many kids a chance to win and increased participation. My only gripe was that the trophy of the winners of the top section didn’t get slightly bigger trophies than the winners of other sections. After all, the kid who came in fifth in the top section would likely handily trounce any of the 230 kids playing in the lower sections.
That was also winners’ thinking, and I’m now ashamed that the idea ever occurred to me. Like all winners, my son’s many top trophies in the highest section depended on many things beyond his control—his immeasurably high IQ in math; his parent’s ability to afford chess camps; classes and private lessons; the role model of his disciplined and career-driven parents; the fact that he never had to worry about where his next meal was coming from. I’m proud of his efforts and achievements, but ashamed that I ever thought about diminishing the size of the trophy of the kid who came in third in the beginners’ section. I’m especially ashamed when I start to conceive of participation trophies as a metaphor for the competition for income and wealth in which all of us are forced to participate from the day we leave school—except of course for trust fund babies like the Trumps, Kochs, Mercers and others for whom the pursuit of additional wealth really is a game.
Translated into real life, the participation ribbon or trophy equals the cut of the income and wealth pie that the 99% of non-winners get. But whereas a trophy or ribbon merely fills up space on a dresser, the participation ribbon or trophy buys food, shelter, medical care, transportation, clothing, entertainment, education, charitable contributions and retirement. Whether it’s a ribbon or a trophy, we give them to children to motivate them and to satisfy an emotional need for dignity. There are also emotional components to what makes humans loyal to any society: Whether it’s an open society or a fascist one, people want to feel that they have a chance to win, that they will be okay whether they win or lose the money wars, that they have a reason to participate in the game, and most significantly for the stability of the game, that they have a stake in its outcome.
Over the past 40 years, American society has time and again created a choice between giving participation ribbons or trophies, and we have chosen always to downgrade a trophy to a ribbon, or to remove the incentive altogether. Lowering the buying power of the minimum wage. Defunding public colleges. Implementing policies that made it harder for workers to unionize. Funding tax cuts for the wealthy with tax increases to others and lower levels of social welfare benefits. Government and large company outsourcing of functions to other organizations that pay employees less. It’s as if we’re always cutting corners on the rewards of participation to provide bigger, glitzier tributes to the winners of a game in which luck matters much more than actual skill or performance.