Market-Based Government Comes at Great Human Cost

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Charting School Budgets, Corporate Profits / Jagz Mario

September 29, 2016; Next City

The allure of the marketplace, with its promise of better service at a lower cost, has fueled a decades-long effort to transform and shrink the role of government. But, what effect does this have on citizens and residents of the United States? Central to this thrust has been a belief that governments are inherently inefficient and ineffective. In a 2010 essay, Leonard Gilroy, Director of Government Reform at Reason Foundation, described the benefits of governments turning their functions over to private organizations.

Local policymakers in many jurisdictions…have used privatization to better the lives of citizens by offering them higher quality services at lower costs, delivering greater choice and more efficient, effective government. In the 21st century, government’s role is evolving from service provider to that of a provider or broker of services, as the public sector is increasingly relying far more on networks of public, private and non-profit organizations to deliver services.

A just-published study by the nonprofit research center In The Public Interest paints a very disturbing picture of how this effort has turned out, particularly for the poor and communities of color. Beyond a number of harmful impacts of privatization, ITPI’s work illuminates a systemic change in the very nature of our citizens’ relationship to their government, a change that diminishes the meaning of community and a collective responsibility for our common welfare.

For the most vulnerable, those for whom public services are most critical, privatization has been expensive and difficult.

The practical consequence of [privatization] in an economy whose wealth and income are now more concentrated than at any time in the past 90 years is to make high-quality public goods available to fewer and fewer.

For the wealthy, the changes have turned out well, as they have profited directly through investments in for-profit providers of once-public services while having their tax burdens kept to a minimum.

Providing its citizenry services like clean water, law enforcement, education, and safe transportation are basic reasons for governments to exist. They are built on belief in a collective responsibility for the common good. A market-based approach to governance transforms citizens into customers and services into products available for purchase.

In this new relationship, the burden of meeting the costs of what governments are expected to provide their citizens gets shifted from the common pool of general tax revenues to the fees charged for each service as they are consumed. A citizen becomes a “customer” who is expected to pay the full cost of services through new or increased user fees rather than a “citizen” who is asked to pay their fair share through taxes. This has led to significant cost increases for the services still directly provided by governments. And when services are fully privatized, the increases are greater, perhaps reflecting the addition of a profit margin to the cost equation.

The ITPI study highlights how this specifically hurts the poor.

Not only is the burden of paying for these services disproportionately shifted to the poor, but private companies that seek to maximize revenues and profits are also able to collect fees directly from these individuals. What can be thought of as a new regressive “tax” is effectively being administered and collected by private companies that may have entirely different goals, priorities, and financial incentives than the government in program and service provision. This is troubling…[and]…makes the services provided by private contractors ripe for abuse that can have detrimental and sometimes life-threatening impacts on the individuals and families who must participate or comply with the terms of these services.

Clean water, the most basic of public services, has not been immune to the effects of this transformation. A study of 500 municipal water systems by Food and Water Watch found “On average, private for-profit utilities charged households 59 percent more than local governments charged for drinking water service—an extra $185 a year.” Parking may not resonate as strongly as clean water, but for small business owners, affordable street parking is a make-or-break proposition. Chicago’s decision to privatize all of its on street parking resulted in parking fees increasing by as much as 700 percent. The annual cost to all parkers has increased from $22 million under city ownership to more than $80 million under private management, changing how accessible many businesses are to their customers.

An insidious feature of the transformation of citizens into customers is that it makes the poorest and the most vulnerable a captive audience for privatized services and the fees they impose. When fees become too high, and with no option for a cheaper provider, they are at risk of falling behind in their payments and having the burden of interest and service fees being added to their indebtedness. The ITPI study looks at how the new relationship has worked in our justice system. Probation services now ask those they supervise to pay the costs—for the poor, that’s often more than is possible.

The longer it takes an individual to pay off their debt, the longer they remain on probation and the more they pay in fees to the private company. […] Companies engage in aggressive tactics to collect, including continual threats of jail time—or even incarceration—when probationers fall behind on payments in an attempt to extract money from their families and other loved ones.

The ITPI study also illustrates how scarce public resources are diverted from their intended purposes and how privatization has changed the nature of the public workforce and supported segregated benefits. All these impacts hurt those who need public services the most. For example, many states have contracted with banks to create electronic benefit distribution systems for their various cash assistance programs. While more efficient for government, the recipient is required to pay for the cost of using this system through various transaction fees. In just one year, in California alone, the SNAP program took $17 million that could be buying food for families and forced them to give it to a bank as transaction fees.

If one measures the success of government in only economic terms, turning to market-based approaches (including privatization) might be seen to have some benefit. Faced with the need to balance today’s budgets, the cash infusion that privatization provides can close budget holes. Chicago’s sale of its parking meters generated almost $2 billion that was used to avoid raising taxes. This provided a short-term benefit, particularly for the wealthy, but caused long-term harm to the larger community.

There seems to be too little public debate on the meaning of citizen-as-customer and government-as-business. If the ITPI report is on target, the net effect of privatization is to widen the divide between rich and poor, white and black. It turns a community into a collection of isolated consumers. It diminishes our sense of shared responsibility. We need to hit the pause button and have this discussion before we have gone too far and permanently ruptured the democratic society of which we think we are part.—Martin Levine

  • Third Sector Radio USA

    Privatization of government services doesn’t just create a growing divide between classes. It is creating a whole new “completely forgotten” class. People become externalities.