What do we think about the "privatization" of government functions and services,
the morphing of public goods into private ones? Think school vouchers, or private
garbage collection, or parks that now charge big fees to get in.
I ask because we're likely to get more pressure soon for privatization in Wisconsin.
The looming $3 billion deficit expected in the next biennium pretty much guarantees
it. As that noose tightens around the neck of the next governor, privatization
will be offered as a way to wring efficiencies out of government while paring
it down to essential functions. (Who really needs a mangy zoo anyway? Or for that
matter, a mangy public school system?)
Advocates of privatization often annoy by effectively assuming their own conclusion.
So they will argue that it's better to have business run something because businesspeople
are smarter than bureaucrats, and then argue that they must be smarter since they
typically get paid more. Or they'll argue that markets are always more accountable
than governments, since consumers have more power in competitive markets than
voters have in elections.
There are all sorts of dubious assumptions built into these common assertions
- so dubious that there's really no reason to believe them at all, in fact - but
you'd never know it from the confidence with which they're stated. But let's explore
in a little more depth just one example of this sort of conceptual annoyance.
Take the claim that privatizing the provision of public services typically
makes them more efficient. That sounds good, but is it true?
To show my own cards at the outset: I assume that there are inefficiencies
in government, which should almost always be minimized. I also think privatization
can be a good means to that end, and certainly one that always should be fairly
considered. There is nothing sacred in public workers providing all public services.
If the private sector can do a better or more efficient job, more power to them.
But this hardly means that privatization is a general antidote to government
inefficiency, or even that it's a good idea. Usually, in fact, it's just redistribution
To see why, let's be clear on what we mean by "efficiency." In economics it
means lack of waste, or getting the most out of some input. Processes are more
or less "efficient" the more or less they get out of the same input. More light
per kilowatt of electricity, for example, or more miles per gallon of gas. By
convention, the efficiency of labor is called its "productivity," and measured
in labor output per hour. So asking if privatization increases efficiency is simply
asking if it increases productivity.
Before answering that question let's digress to observe that, all else being
equal, we like productivity improvements. The more productive a worker the more
business can afford to pay and still make a profit, which in a capitalist world
is the key to social peace. Productivity growth enlarges the pie produced by labor
and capital, permitting both to eat more and shoot each other less. Productivity
gains are shared by better-paid workers and still-profitable capitalists. Living
standards and wealth both grow. Everybody's happy enough.
Returning to our question then, does privatization bring such happiness?
The answer is "almost never." Where it matters most - in labor-intensive government
services - private labor is generally less productive than public labor. This
is because public labor is typically unionized, which improves its working conditions
and job tenure, making it more experienced and better trained.
All that privatization typically gets us is a private worker with worse wages
and benefits than the public one who was displaced. That saves taxpayers money
at first, but what goes around comes around. Poorly compensated workers contribute
less to a community's tax base and draw down more of its public goods. They might
use emergency room visits for their health care, for example, since they can't
afford a doctor.
And who pays for that? The same taxpayer who thought he was cleverly saving
money by "privatizing" whatever service this worker now provides.
That's why privatization is best thought of as redistribution. What used to
be in the pocket of the unionized public sector worker is now in the pocket of
a private employer, or coming out of the pocket of another taxpayer.
So the next time some politician tells you he's got the big answer - "privatization!"
- ask him what the question was. Was it how to make government more efficient
and accountable? Or was it how to pit workers against each other and get rich
at both their expenses? If you ask this in a low-key way you can sometimes get
the politician to squirm.
Joel Rogers is director of COWS, the Center on Wisconsin Strategy, at the
UW-Madison. COWS is sponsoring "Sustaining Wisconsin," a statewide dialogue about
the future of Wisconsin. Go to www.sustainingwisconsin.org
for more information.
Copyright 2002 The Capital Times