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The Truth About Privatization

When the primary goal is to serve the public, rather than shareholders, we need to be careful not to sacrifice the public interest to private profits

The goal of corporations is to maximize profits for shareholders, not to serve the public interest. (Photo: Screenshot/Robert Reich)

The goal of corporations is to maximize profits for shareholders, not to serve the public interest. (Photo: Screenshot/Robert Reich)

Privatization. Privatization. Privatization. It’s all you hear from Republicans. But what does it actually mean?

Generations ago, America built an entire national highway system, along with the largest and best public colleges and universities in the world. Also public schools and national parks, majestic bridges, dams that generated electricity for entire regions, public libraries and public research.

But around 1980, the moneyed interests began pushing to privatize much of this, giving it over to for-profit corporations. Privatization, the argument went, would boost efficiency and reduce taxes.

The reality has been that privatization too often only boosts corporate bottom lines.  

Consider Trump’s proposal for infrastructure. It depends on private developers, who would make money off of both tax subsidies and private tolls.

For example, consider Trump’s proposal for infrastructure. It depends on private developers, who would make money off of both tax subsidies and private tolls. So the public would get charged twice, without any guarantee that the resulting roads, bridges, or rapid transportation systems would be where they’re most needed.

It’s true that private for-profit corporations can do certain tasks very efficiently. And some privatization has worked. But the goal of corporations is to maximize profits for shareholders, not to serve the public interest.

The question should be: What’s best for the public? Here are five rules of thumb for when public services should not be privatized:

1. Don’t privatize when the purpose of the service is to bring us together – reinforcing our communities, helping us connect with one another across class and race, linking up Americans who’d otherwise be isolated or marginalized. 

This is why we have a public postal service that serves everyone, even small rural communities where for-profit private carriers often won’t go. This is why we value public education and need to be very careful that charter schools and other forms of so-called school choice don’t end up dividing our children and our communities rather than pulling them together.  

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2. Don’t privatize when the service is less costly when paid for through tax revenues than through prices set by for-profit corporations. 

America’s hugely expensive for-profit health-insurance system, for example, is designed to sign up healthy people and avoid sick people, while running up huge tabs for advertising and marketing, and giving big rewards to shareholders and executives. Which is why the administrative costs of Medicare are a fraction of the costs of for-profit medical insurance – and why we need Medicare for all.

3. Don’t privatize when the people who are supposed to get the service have no power to complain when services are poor. 

This is why for-profit prison corporations have proven again and again to violate the constitutional rights of prisoners, and why for-profit detention centers for refugee children at the border pose such grave risks.

4. Don’t privatize when those who are getting the service have no way to know they’re receiving poor quality. 

The marketers of for-profit colleges, for example, have every incentive to exploit young people and their parents because the value of the degrees they’re offering can’t easily be known. Which is why non-profit colleges and universities have proven far more trustworthy.

5. Finally, don’t privatize where for-profit corporations face insufficient competition to keep prices under control. 

Giant for-profit defense contractors with power over how contracts are awarded generate notorious cost overruns because they’re accountable mainly to their shareholders, not to the public.

In other words, for-profit corporations can do some things very well. Including, especially, maximizing shareholder returns. But when the primary goal is to serve the public, rather than shareholders, we need to be careful not to sacrifice the public interest to private profits.

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Robert Reich

Robert Reich

Robert Reich, is the Chancellor’s Professor of Public Policy at the University of California, Berkeley, and a senior fellow at the Blum Center for Developing Economies. He served as secretary of labor in the Clinton administration, for which Time magazine named him one of the 10 most effective cabinet secretaries of the the twentieth century. He has written fiften books, including the best-sellers Aftershock, The Work of Nations, Beyond Outrage and, Saving Capitalism. He is also a founding editor of The American Prospect magazine, chairman of Common Cause, a member of the American Academy of Arts and Sciences, and co-creator of the award-winning documentary, "Inequality For All." Reich's newest book is "The Common Good." He's co-creator of the Netflix original documentary "Saving Capitalism," which is streaming now.

 
 

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