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The Problem With Privatization



Thomas L. Knapp
Center for a Stateless Society
May 15, 2009

Over the course of the last 25 years or so, “privatization” has gone from innovative idea to over-used buzzword to standard government operating procedure (often described as “public-private partnerships”).

Last week, the National Aeronautics and Space Administration announced its own privatization initiative: NASA intends to pay private firms to provide interim rockets and crew capsules while it develops a government replacement for the shuttle program. Other recent privatization trial balloons cover everything from Internet governance at the international level to foster care at the state level.

The idea behind privatization is that the private sector — the market sector — operates more “efficiently” than government, providing cost savings to the taxpayer. Company X, we’re told (probably truthfully) can produce the widget for a buck, where a state-owned and operated factory would require two bucks to produce the same widget.

That, of course, raises the question of what we need government for. Why not just buy the things we want on the free market in the first place, rather than passing our money to market providers through the hands of inefficient government bureaucracy, driving the total cost back upward toward that “inefficient government” price?

Convinced anarchists need no more justification than that question to reject privatization outright. The unconvinced, however, may require more evidence for the unacceptability of privatization. That evidence is abundant.

Privatization, as it is currently practiced, strengthens the state and weakens the private sector. While it was originally sold as bringing “market values” to “public sector” operations, in practice exactly the opposite has happened.

First of all, “privatization” is a misnomer. When a government project is “privatized,” the state generally retains substantial authority over that project — and takes a substantial financial rakeoff for “administration” and “oversight.” The retained authority keeps the whole project soaking wet in the smelly liquid of politics, and the rakeoff, as previously mentioned, pushes the real price back upward from “market prices” toward “political prices.”

Secondly, the enterprises attracted to, and most likely to garner contracts for, privatization schemes aren’t necessarily the most efficient market enterprises. Rather, they’re the enterprises which hire the best lobbyists and wield the most political influence. In this respect, “privatization,” rather than being a cure for government failures, is a vector for infecting the private sector with the same diseases.

Finally, there’s a flip side to the “public-private partnership.” While the state retains substantial authority over the projects, the contractors get tagged with substantial responsibility for the outcomes.

When a privatized project goes south — when it comes to light that inmates have been abused in “private” prisons, or prospectively when one of NASA’s “private” crew capsules loses atmosphere in orbit — our bureaucrats will point their fingers straight at the “private” contractors and hope we forget the piles of government standards those contractors were required to operate under.

The market entities, if there are any involved, take it in the shorts; more likely, these “market entities” are actually politically connected enterprises who’ll be back for another dip from the well after things blow over and fade into memory, but they at least get a public spanking to keep up appearances.

The government entities, on the other hand, move forward with their reputations unstained and their budgets untouched.

Privatization, as currently practiced, is a “heads the state wins, tails the state’s subjects lose” proposition. If a privatized project founders on scandal or capsizes on cost, it’s all the market’s fault and the state should get more directly involved. If a privatized project “succeeds,” the state takes the credit and throws more “privatization” bait into the water, bringing more of the “private sector” into its happy, spendthrift “public sector” family.

The alternative to privatization as currently practiced — let’s call it “sham privatization” — is real privatization: Taking the provision of traditionally “public” services away from government altogether. The nugget of truth at the core of sham privatization schemes is that yet, the market really is more cost-efficient than government. At everything.


C4SS News Analyst Thomas L. Knapp is a long-time libertarian activist and the author of Writing the Libertarian Op-Ed, an e-booklet which shares the methods underlying his more than 100 published op-ed pieces in mainstream print media. Knapp publishes Rational Review News Digest, a daily news and commentary roundup for the freedom movement.

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