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Articles:
Economics
The
Problems of Privatization
Sunday, May 1, 2005
A
lot of people perceive government as a bloated, inefficient
bureaucracy that functions primarily to waste taxpayer dollars.
I agree that the government seems to spend more money than
they should offering public services. What I don't agree with
is one proposed solution: complete privatization.
Many
people believe private enterprise is more efficient than public
services. They believe a business will deliver mail, teach
your kids, build infrastructure, and handle your emergency
needs faster, better, and less expensively than the government.
On the surface, this seems true. Businesses function to make
money. To that end, they will do as much as they can with
as little money as possible. They need to reduce costs and
maximize profits to survive. If a private company is delivering
mail, they would have to offer their service cheaper than
the competition. They would have to constantly seek new ways
to cut costs and improve service. We can see an example of
this by looking at UPS, FedEx, and DHL. When they compete,
consumers win. If the services currently managed by the government
were handed over to private companies, we could stand to win
big. Competing companies could provide much better service
at a much better price. This could improve the nation as a
whole, as well as dramatically reduce taxes.
But
now, turn your attention to the issue of corporate malfeasance.
In any corporation, you will have the privileged few who do
not act in the best interest of the company. They will give
in to greed and steal all they can from the company. We've
seen high-profile cases in recent years involving Enron, Tyco,
WorldCom, and other big-name companies. There are many more,
less dramatic examples that pervade corporate America. In
many cases, such issues are settled with a termination or
fine, but the damage is still done. When an employee steals
from a company, they are stealing from a lot of people. They
steal from shareholders, other employees, customers, suppliers,
and anyone who benefits from the fiscal success of the company.
In cases where such white-collar theft results in bankruptcy,
many people stand to lose a lot. Many Enron shareholders,
for example, lost their entire savings.
It's
in that light that privatization suddenly appears much less
appealing to me. While corporations may act in the best interest
of consumers, the people running them may not. Do we really
want to place the education of our children in the hands of
potential criminals? What if the company running your kid's
school goes bankrupt as a result of such activity? What if
they're the only school operating in your area? That brings
me to another criticism…the lack of corporate motivation
to provide service in all areas.
Companies
function to make a profit. If something is not profitable,
they will abandon it in favor of more profitable ventures.
Let's say for example you live in a small town. Suddenly your
fire, EMS, and police services are privatized. A few companies
set up shop in your town, but after some time they fail to
make any money. They could increase their rates, possibly
dramatically, to turn a profit. Where does that leave the
public? If they want such services, they would have to pay
exorbitant prices for them. In this case, competition doesn't
help. A company couldn't cut their prices below their operating
margin. If the operating expenses in an area are high, every
company would have to charge high prices. Instead of increasing
their prices, a company could just shut down operations. If
no company finds it profitable to offer emergency services
in a town, where does that leave the public? Without emergency
services?
Some
may argue that those in charge of public services are they
themselves as corrupt as any potential private-sector criminals.
But the beauty of government is accountability. As public
servants, they answer to the people. That is after all, the
essence of democracy. If the people don't like what servants
are doing, they can get rid of them. If the people don't like
what a corporation is doing, they have no say; that benefit
is limited to shareholders. If you require ownership of a
company to dictate the actions of company executives, suddenly
you have taken power from the people and given it those with
money. Only those who can afford corporate shares have any
say over corporate actions.
Again,
let's say you live in a small town. One company operates your
town's only school because other companies didn't find the
venture profitable. The executives in charge of this company
are embezzling the company, and the school, into bankruptcy.
But none of the company's shareholders live in your town,
they live in privileged neighborhoods on the other side of
the country. It's not their children's educations at stake.
Sure they own shares and stand to lose money if the company
goes under, but those shares are only a small percentage of
their portfolio. It's not worth the bother to go to any great
lengths to protect an investment they won't even notice they
lost. And remember, Enron, Tyco, and WorldCom shareholders
didn't stop their executives from robbing them blind. So where
does that leave you, your kids, and their education? If the
company and the school go bankrupt, where do you turn? And
if the people running the school are crooked enough to steal
from it, what kind of education are your kids even getting?
Keep
in mind, too, that money you would save from reduced taxes
wouldn't go entirely in your pocket. You would have to directly
pay for school, emergency services, road construction, and
other things the government currently does with tax money.
If you're disabled, poor, working poor, or otherwise couldn't
afford such services, you could very well have to do without.
The wealthy would stand to gain the most from privatization.
They would benefit the most from reduced taxes, and could
easily afford private services. A person who works two jobs
for low wages to barely get by wouldn't benefit much from
reduced taxes, yet would suddenly have the burden of new expenses
for services. How would it impact our country if a large portion
of kids no longer went to school? What if a poor county couldn't
afford to pay for their section of an interstate highway?
Do we just let people who can't afford emergency services
die in their lawns from heart attacks and assaults? If someone
murders your spouse, would you have to pay for an investigation?
If you couldn't afford it, would the murderer get away? What
would that do to crime levels? I have yet to see positive
responses to these questions from those who support privatization.
I
realize these may be melodramatic doomsday scenarios. Maybe
privatization could work. But I see the potential for utter
disaster, and I believe it's a risk we shouldn't take. I don't
believe it would benefit our country one bit to further promote
a plutocratic system where only the wealthy minority is able
to live the American Dream.
Capitalism
is the astounding belief that the most wickedest of men will
do the most wickedest of things for the greatest good of everyone.
--John Maynard Keynes
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