Bad Privatization

For a dozen years at least, the boosters of privatization of government services have had a corner on many business magazines and newspapers. Conservative, corporate-funded groups such as the Heritage Foundation pour out reports, usually authored by staffer, Stuart Butler, purporting to prove the inherent superiority of privatizing everything from fire fighting to collecting taxpayer debts owed government

From Hillsdale College in Michigan, Professor Charles van Eaton, with evangelical fervor, declares that he can hardly think of any government services which should not be conducted by private business under contract to the government. Privatization, he says, gives government “the right to shop around.” Of course, there is nothing new about privatization. The government’s munitions needs were privately contracted in the Civil War with some major scandals over defective weapons causing many fatalities and injuries among the troops.

The Defense Department contracts out most of its military weapons systems for design, construction and testing. You can fill a warehouse with official investigative reports by Congress, the General Accounting Office (GAO), the Defense Department’s own auditors and the press regarding the rampant waste, fraud and abuse there. Over ten years ago the GAO estimated that $50 billion a year is wasted under these military contracts, not to mention the defective armaments delivered time and time again.

It goes on and on. Just recently, the Resolution Trust Corporation, the government agency handling the sale of S & L assets paid between 67 cents and $1.00 to copy each page of documents. Price Waterhouse got that plum.

Right after last November’s election, the Bush Administration, through its Office of Management and Budget, released a report documenting the massive fleecing of the taxpayers by violative private contractors who receive some $210 billion in federal contracts a year. Lavish cruises and entertainment, padded paychecks and cost overruns were only some of the infirmities of the present system.

But, oh, says Professor van Eaton, that is because these contracts are not let out competently and competitively and are not monitored. If they were, privatization saves taxpayers big money and empowers elected and appointed officials to shop around.

Apparently, inadequate monitoring is the privatizers’ explanation for private fire fighting companies, as the one in Salem, Arkansas, which rushing to the scene of a house on fire learned that the owner had missed paying his recent annual dues for fire protection. Arriving at the scene, the fire truck crews watched and let the house burn down. That was the company’s usual practice once it determined no one was inside the buildings.

Apparently, inadequate monitoring explains how the privatized student loan program, called Sallie Mae, paid its executive more than ten times the salary of the President of the United States, among other lavish disbursements on its bloated mission.

Apparently also, inadequate monitoring has led to endemic highway bidrigging by construction companies. Many have been prosecuted by the Justice. Department, but the practice keeps coming back. Moreover, the asphalt and cement lobbies have thwarted the approval of superior highway designs that prevent most maintenance expenses but, alas, use less asphalt and cement.

Privatizers should but rarely do realize that an upgraded democratic structure has to be built around government to make sure that taxpayers and voters can compel proper contracting and monitoring.

Recently, I asked Professor van Eaton whether he would support (1) the universal adoption of the initiative, referendum and recall in all states and municipalities; (2) the end of all secrecy to procurement contracts for goods and services, absent real national security considerations and; (3) taxpayer rights to sue in court against government boondoggle contracting. To his credit he said “yes.”

I further asked him if he would favor a checkoff on the 1040 tax return inviting taxpayers to join their own taxpayer watchdog groups — controlled by member taxpayers who paid modest annual membership dues — to watch over, with their own full time monitors the government-private contractor arena. He replied that he would support this taxpayer empowerment tool.

Then I inquired whether he would support tougher antitrust enforcement to crack down on collusive bidders and collusive product fixers who narrow the shopping-around opportunities for government buyers. He said, no! Instead, he would raise the price offered to be paid until it paid a member of the cartel or collusion “to cheat” and break ranks.

Well, I finally scratched his ideological underpinnings. Imagine forcing the taxpayer to bribe companies to break ranks from a criminal collusion under the antitrust laws. Still, he went further than any other privatizer about whom I’ve read in endorsing the need for more citizen democratic tools..

What should and what should not be privatized will continue to be a matter of political philosophy and empirical argument. What is certain, however, is that privatized ex-Presidents do very well. Former President Bush just received his first speech fee -­$80,000 from the National Restaurant Association.