From what ive read, consumers are definitely not the beneficiaries in such arrangements. Why do governments do this then? Why give up ownership and control of vital stuff (e.g. water, utilities, highways, etc.) to private – and often – foreign entities?
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2 basic principles:
1. It cost money to maintain
2. It drives concurrence
The first is self explanatory. Public service mean you pay taxes for it. And the government is not always the best with handling money. Privatizing means that whomever made the change can either drop the tax completely (Which usually looks very nice in his next campaign) or put the money to something else.
The second is that in theory, by making something private, you should end up with more than 1 company providing the service. As a result, they both want to take away customers from the other, pushing them to lower prices and/or improve the quality of the service. (The efficacy of such concept is debatable but is not the focus here)
Building infrastructure costs a LOT of money. Local governments would have to borrow money or raise taxes for construction. Many voters don’t find either of those options very appealing. Therefore the government will ask a private company to build the project using their own money and in return that company will get to charge a toll or other fee to use the infrastructure. This way the debt and costs aren’t in the governments books and they may even avoid some blame for the tolls.
Private enterprises are profit driven. They may make individual decisions based on things like morality or public good but their overarching motive is always profit. A private enterprise that fails to honor this rule will be replaced by competitors who do.
The main benefit of this profit drive is efficiency. In most cases, that’s the easiest way to make more profit.
The problem mostly comes from one of two areas.
Sometimes the sacrifices we make for efficiency are socially unacceptable. We want cheaper water but we still want it clean.
Often, increased efficiency means occasional shortages. That’s fine when the product in question is iPhones, not so nice when it’s food.
Government sometimes gets captured by industry. This is usually done through unfettered political donations. Once captured, government will sell off essential services so that private entities can profit off of them.
People are fond of calling government inefficient. The profit that a private entity extracts from providing a public service is another form of inefficiency.
Most privitisation stems from pure ideology. The belief that government shouldn’t be doing something that the private sector (a.k.a. their buddies) could. This is rarely true because it’s impossible for there to be competition in most former public services.
Services run by a taxpayer-funded bureaucracy tend to be much more inefficient than their private-sector counterparts.
I live in Canada where we’ve had public health care for a number of decades now and had an opportunity to talk to a retired American doctor about the differences between his experience as a private physician under the American system versus Canadian physicians.
He pointed out that on one hand, under a public system, everyone has access. Nobody in Canada goes bankrupt over medical bills from common injuries or illnesses. Here in Canada, if a kid falls out of a tree and breaks their arm, the kid goes to the hospital and everything from initial treatment through physiotherapy on the mended arm is covered. In the US, that same level of care could cost a family thousands of dollars out-of-pocket if they’ve been struggling to keep up with their insurance. That’s a massive bill out of nowhere. What good is big modern hospitals if the people who need them can’t access them without ruining their immediate financial future?
On the other hand, because everyone has access to care at no cost, the demand on our health care systems is higher. The funding available to pay for it all, however, is determined mostly by government budgets, not physicians or hospital administrators, so if there’s not enough to go around, the quality of care suffers.
The specific example the doctor gave me was that of the “annual physical”. In Canada, it consists of some blood tests, a urine sample, and potentially age/physiology related tests like prostate exams, mammograms, etc. It’s like an hour at a lab altogether and most of that is spent waiting. The last time I went in for my annual physical, the doctor’s office didn’t even call me after I had the lab work done because nothing had changed and they were ‘too busy’.
Under the private system, there are a lot more tests, the testing process is much more comfortable (more sedatives/anaesthesia available, etc) and then your physician will sit down with you and review the results in detail and offer counselling and treatment as required.
As much as some people would like to tell you there’s a right way and a wrong way, there’s not. There are drawbacks and benefits to privatizing resources. One of the downsides is that it introduces a profit motive into something that people don’t like being profited from. But that, alone, doesn’t make privatization bad. It just means some people are opinionated and narrow-sighted.
The reason why some public services go private is that the private sector is more motivated to deliver. The reason why it’s sometimes bad is because people don’t trust people who are motivated by profit, so every single time a price is raised or a service standard is changed, they’re going to blame it on greed.
I don’t trust doctors in my area because they’re doing a very poor job and complaining a lot about how hard done by they are. If I was in a place like the US, I wouldn’t trust doctors because they’re expensive as hell and health insurance can be a significant burden. There’s not going to be a best outcome on either side.
It’s kind of a mess. It’s really only messy for people who insist on trying to decide which of the two is inarguably superior, because this isn’t the kind of issue that distills down to one side or the other that way.
The pro-business side will say that in a changing world, the business has an incentive to optimize, iterate, improve efficiency, and uptake new technology to better maintain itself. Whereas government has no such market imperative, and will not change with the times.
The anti business side notes that businesses are driven by profit, and in search of profit may not be ideal shepherds of what is best for society. And, when monopolies emerge because who is going to pay to dig up the streets 7 times to provide competing gigabit ethernet cables or water mains, prices can begin to extort the customers with no free market remedy. Businesses have also been happy to reap the profits in good years, but when disasters emerge they declare bankruptcy and leave their messes for “the people”.
These perspectives both have merit.
Sometimes it’s done due to a conflict of interest for the Government to regulate itself. Owning the utility company means the government is managing the operations while having to regulate these operations, which usually means poor enforcement of the regulations or inadequate regulations.
For example, government owning waste management services. The regulations set fees and fines/penalties. The government entity has to manage disposal practices, fine itself and collect the fine from itself, if for some reason one of its trucks breaches the requirements.
It often means the quality of service and management in general rarely improves because there’s not a separate body with oversight.
It would be more practical and advantageous for the quality of service, if private entities were providing the service and the government entity focused on regulating the operations of these entities.
It depends on how much of the work the government was doing before, and how well they were doing it.
For example, the government typically outsources highway construction but they keep the traffic management and safety inspections in-house.
When this kind of stuff gets privatized, it’s essentially just another contract that’s larger in scope – for example, instead of outsourcing the construction of a water treatment plant, the government outsources the entire water treatment process, including (and this is the part that people care about) customer service and billing.
There is a small ‘sweet spot’ of city size where for medium sized cities, having a private utilities company handle the utilities will be more efficient than having the city handling it themselves (due to economies of scale). For cities that are super small, the potential profit is too small for private companies to even bother, and for cities that are super large, the city can handle it themselves for cheaper (due to economies of scale).
However, some other services like roads and airports do not really have a business model that makes it possible for a private owner to make a profit. As a result, these services are typically managed by the city and they hope to recoup costs through higher property/sales taxes.
If a government decides that a public service is costing too much Or is inefficient, they will sell it to a private company to run. The government may regulate how the service is run, but it’s up to the private company to make a profit to run the service.
Because governments typically employ union members, their labor costs can be higher. It’s also more difficult to fire poor performing employees. Government services typically end up management heavy with middle managers needed to manage another layer of middle management.
By privatizing, taxes can go down because government no longer has the payroll, benefit, and pension liability.
All this is the argument for privatizing public services. Once that happens, profit motivates the private company and prices typically get higher, while services get worse, and employees get exploited to extract more profit.
There are many examples in here of why privatization is a bad thing, but that doesn’t change the arguments governments use to justify it.
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