Our Opinion: The downside of privatization


Much has been said in recent years about income inequality, the disappearing middle class and the widening gap between the super-rich and the rest of us. Some of this can be attributed to manufacturers and other companies outsourcing good-paying jobs to other countries with cheap labor.

However, new studies indicate that our own local, state and federal governments are contributing to the problem by outsourcing and privatizing public services in order to save money and balance their budgets. The irony is that this practice has been shown to actually have greater financial and societal costs in the long run.

"In theory, privatization is a great deal for taxpayers because it saves a few bucks in the town budget," according to Jared Bernstein, a senior fellow with the Center on Budget and Policy Priorities. "In reality, taxpayers are funding the downward spiral of their own communities -- and often paying far greater costs in the long run. The degradation of formerly family-supporting jobs through government outsourcing turns middle class careers into poverty-level jobs. Governments across the country are using our public dollars to fuel the low-wage economy and increasing economic inequality."

Bernstein was one of several experts cited in a new report, "Race to the Bottom: How Outsourcing Public Services Rewards Corporations and Punishes the Middle Class," that was released last week by the group In the Public Interest. The report concludes that far-away corporate executives benefit from lucrative government contracts while local communities suffer the consequences of lower quality services and middle class careers being replaced with poverty-level jobs -- all inadvertently funded by local taxpayers.

Consider these examples used in the report:

-- In New Jersey, food service workers had their wages cut by $4 to 6 per hour and many of their health insurance benefits wiped out when their jobs were outsourced to companies like Aramark, Sodexo and Compass. Food service companies have among the highest levels of employees and their children enrolled in the New Jersey FamilyCare program -- driving up poverty and likely costing taxpayers far more than any savings realized from privatization.

-- In Michigan, nursing assistant jobs at a veterans home went from a $15 to 20 hourly wage with health benefits to a starting wage of $8.50 per hour with no benefits after the jobs were outsourced. Studies show the cuts resulted in higher turnover among the outsourced nursing assistants, and ultimately, lower levels of reliability and qualify of care for veterans.

A separate report from AlterNet.org came to the same conclusion: "While outsourcing and privatizing public functions and services may look good on the fiscal balance sheet, it's bad news for American workers, local communities and society as a whole."

This report notes that part of the grand delusion inflicted on American citizens is that public employees and union workers are greedy good-for-nothings, enjoying benefits that average private sector workers are denied. The implication, of course, is that low-wage jobs with meager benefits should be the standard for all wage-earners.

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However, AlterNet wrote, "The supportive environment that right-wingers call ‘socialism' helps to sustain living wages for millions of families. The private sector, on the other hand, is characterized by severe wage inequality. While corporate executives and financial workers make multi-million dollar salaries, millions of private company workers toil as food servers, clerks, medical workers, and domestic help at below-average pay."

What's more, private initiatives generally produce mediocre or substandard results while experiencing the usual travails of unregulated capitalism -- higher prices, limited services, and lower wages for all but a few "entrepreneurs," AlterNet argues.

Consider these examples cited in the report:

-- In Chicago, when the management of parking meters was sold to a Morgan Stanley group, the result was a massive rate increase, which hurt small businesses whose potential customers are unwilling to pay the parking fees. And when Indiana sold control of a toll road, tolls doubled over the first five years of the contract.

-- Our private health care system has failed us. We have by far the most expensive system in the developed world. The cost of common surgeries is anywhere from three to 10 times higher in the U.S. than in Great Britain, Canada, France or Germany.

-- Across industries and occupations, according to the Project on Government Oversight, the federal government paid billions more on private contractors than the amounts needed to pay public employees for the same services.

To make matters worse, AlterNet says privatization often creates an incentive to fail. One example is the privatized prison system. Corrections Corporation of America has offered to run the prison system in any state willing to guarantee that jails stay 90 percent full.

"This is where it gets creepy," says Business Insider's Joe Weisenthal, "because as an investor you're pulling for scenarios where more people are put in jail."

In road privatization deals in California and Virginia, AlterNet says "non-compete" clauses prevented local municipalities from repairing any roads that might compete with a privatized toll road. In Virginia, the tollway manager even demanded reimbursement from the state for excessive carpooling, which would cut into its profits. The Chicago parking meter deal requires compensation if the city wishes to close a street for a parade, and the Indiana toll road deal demanded reimbursement when the state waived tolls for safety reasons during a flood.

While it's easy to blame politicians for these decisions to privatize and the fallout they create, we as taxpayers need to accept part of the blame because we're the ones putting pressure on them to reduce government budgets and deficits. So before we jump headlong into embracing promises of lower taxes, we need to consider the long-term ramifications for our communities, our country and our children.


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