President Obama: Stop Privatization to Eliminate Crony Capitalism and Higher Taxes.
When considering the topic of governmental privatization, one must conclude the old adage that it's actually socialism for the wealthy and capitalism for the poor. The sole beneficiaries of governmental privatization has been and will continue to be large corporations and the wealthy class in America. Historically, governmental privatization has always led directly to rampant government corruption, less service and lower quality products at a higher cost to taxpayers. Privatization may very well become America's next great man-made nightmare by ultimately establishing monopolies, influencing public officials, and seeking to obtain tax breaks and hidden subsidies that are commonly used to enrich private individuals, corporations and investors at the public's expense. It will also have the undesired effect of undermining states by removing their revenue base, thereby transforming this government revenue into profits for domestic and foreign private-sector enterprises. Privatization experienced it's first great failure in the United States in 1823 in New York City and has consistently failed since.
1849 - Mayor Caleb Woodhull stated: “The system of cleaning the streets by contract has signally failed of fulfilling public expectations, and I assume that it is no longer entitled to public favor. At first it seemed to promise important advantages, both as to economy and efficiency, but in its operation it has proved entirely inadequate to accomplish either of these desired results. . . . I would therefore recommend an abandonment, as soon as practicable, of the contract system, and the entrusting of the entire business to the Superintendent of Streets, under the supervision of the proper department.”
1892 - The Chicago Board of Health declared: “There are few, if any redeeming qualities attached [to the contract system]. No matter what guards are placed around it, the system remains vicious.”
1895 - ”Mayor Pingree of Detroit expressed the view: “Most of our troubles can be traced to the temptations which are offered to city officials when franchises are sought by wealthy corporations, or contracts are to be let for public works.”
1999 - Author Moshe Adler summarized: “By the end of the 19th century . . . The realization that every possible improvement to contracting out had been tried led city after city to declare its failure. . . Practically all American cities discarded contracting out at that time and switched to governmental production.”
Now, imagine for a moment the colossal damage that could be wrecked upon the United States In the 21st century in a fully privatized country, with our propensity towards lack of accountability, our seeming inability to adequately punish white collar crime, our high speed computers, off-shore tax havens and the armies of corporate accountants and tax lawyers all waiting in the wings for just such a dream opportunity. An existing example of the potential damage that may be caused would be the decades old strategy of privatization of the emerging nations in the southern hemisphere by the International Monetary Fund (IMF) and the World Bank. This strategy has been used like a large club over the heads of many of these third-world nations seeking to acquire loans, with devastating results of rampant poverty (Except for the public officials involved), public unrest and disenfranchisement of their nation's natural resources. Does the United States also wish to be part of this decades long failed experiment in privatization?
Governmental privatization is misguided because it is based on false theories about how people behave and about biophysical reality. The real world is much more complicated and corrupt than economists believe it to be. A good example of economist's simple mindedness is the remark by the 2005 Nobel economist, Thomas Shelling, who stated that climate change is not much of a threat to society. His reasoning for this assertion was that climate change will impact mainly agriculture and forestry, which represent only three percent of gross domestic product. In this case, one could reason that a world without forests, plants or more especially, without food to eat, would be a world that would not require a gross domestic product, or anything else for that matter.
In the real world, governmental privatization operates less like textbook competition and more like a textbook monopoly or oligopoly. It will ultimately lead to a less capable and responsive government at a much higher cost. This misguided concept has now become favored in the U.S. (again) for it's ideological purity, rather than it's practical content and realism. The empirical record indicates several counter intuitive outcomes from privatization. For example, the cost to the tax payer will tend to go up, not down. More political influence occurs, not less. The 'to big to fail' concept will ultimately take hold and large corporations will begin to function less like businesses and more like the protection rackets of the early twentieth century. Clear examples of this may be found with Wall Street and the Military Industrial Complex who offer nothing tangible, just threats of layoffs, potential for recession, warnings about our safety or the potential destruction of our economy if they are not given their way. Addition of other industry 'complexes' would simply expand and exacerbate this problem. Higher taxes on large corporations and lower taxes on small businesses (within productive and beneficial industries) would tend to discourage this type of phenomenon. This would give disincentive to large corporations from getting larger and incentive for smaller businesses to remain small, efficient and effective.
The Government Finance Officers Association (GFOA) estimates that hidden and indirect costs of privatization can add up to 25% more on the typical contract price. Additionally, according to a 2007 survey by the International City/County Management Association, 52% of governments that brought privatized services back in-house reported the primary reason was insufficient cost savings and over 60% sited reduced quality of service as the motivating factor to discontinue privatization. Additional costs were also required to dedicate sufficient personnel and time to monitoring contracts. If not, the local governments would run a high risk of poor contractor performance and the potential of wasting large sums of taxpayer money.
A modern example of rampant political influence, corruption and the gross overcharging of American taxpayers would be the Halliburton corporation. Halliburton’s first Iraq-war related contract was a no-bid, open-ended, 7-year contract awarded before the war even began. Halliburton’s revenue from Pentagon contracts jumped from $483 million in 2002 to over $6 billion in 2006. We should also remember the Enron corporation that hid debt from its books in order to artificially inflate its value to shareholders and Enron's illegal trading in electricity which led to the California energy crisis in 2001 and the subsequent continual rolling blackouts and higher electricity costs that followed. If you remember these brief examples of privatization, you should also realize that these examples are just a few of the potential pitfalls that may be expected with governmental privatization.
Here's the basic problem; When considering privatization, it should be remembered that corporations have one objective, which is to increase profits over time by any and all means available to them (this is required by law and the shareholders). The very notion that we may replace a supposed government bureaucratic entity with an equally bureaucratic, private-sector, for-profit business model and thereby receive better products and services at a lower cost to taxpayers is quite frankly, breathtakingly naive and incorrect. The history of governmental contracting tells a very different story. The actual paramount objective of governmental privatization is to generate ever increasing profit for the private sector, where profit is achieved primarily by shifting the product or service cost to labor through layoffs, steep wage cuts and a significant reduction or total elimination of employee benefits. This scheme tends to impoverish the middle-class and working poor, while greatly increasing the profits and income of the large corporations and the wealthy class.
As wages have continued to erode over the past 30 years, wealthy individuals, large corporations and investors have searched for a new and reliable income stream to offset the lost buying power of the middle-class. This has been accomplished by capital investment in foreign manufacturing facilities to capitalize on cheap labor and relaxed regulations in underdeveloped or emerging nations. Another strategy has been to encourage and promote over-extension of credit (borrowing), to compensate for diminished wages. This has allowed an upward flow of revenue to the wealthiest Americans of roughly $1.5 trillion annually, while borrowing by the middle-class to supplement lower wages has accounted for roughly $1.0 trillion in annual debt. This unrestrained borrowing over time has accelerated income inequality and has continued to become more pronounced years after year, since the early 1980's. These unrealistic economic models have now combined to become very destructive to our nation's economic health and is virtually destroying the middle-class in America.
A third scheme to be exploited has now become governmental privatization. The development of multiple 'cooperative complexes', of similar industries, based on the Military Industrial Complex model of strength through consolidation of industry sectors and cooperative unity. This has the potentiality of creating numerous monopolies, all vying for larger tax cuts, greater tax subsidies, less regulatory constraint and higher profits from local, state and federal tax dollars. This will also tend to accelerate takeovers of smaller and weaker companies by large corporations in the pursuit of total dominance of individual industry sectors and thereby straining the anti-trust laws to the breaking point. With human nature being what it is, it's terrifying to contemplate a government that is based solely on quarterly or annual profit margins. The government would be forced to concede it's capabilities and strengths to that of the private sector, or more accurately, to that of a new class of Robber Baron. The government would no longer have the power or ability to ensure the health, happiness and safety of it's citizens and elimination of government expertise and capabilities would have the effect of potentially jeopardizing national security by decreasing the governments ability to react quickly, efficiently and effectively to threats and national emergencies once governmental privatization is fully implemented.
To gain a greater understanding of the potential impact and insidious nature of privatization, let's look at the United States Postal Service (USPS). This is perhaps the most blatant attempt to forcibly privatize a nationally valued and beloved institution we have ever before witnessed in America. The problem originates with a 2006 Congressional mandate by Republican leadership that requires the USPS to 'prepay' into a fund that covers health care costs for future retired employees for the next 75 years and accomplish this herculean task in a mere 10 years. This begs the question; Why is Congress forcing the USPS to fund health care for people who haven't even been born yet? This ridiculous political maneuver may force USPS completely out of business, if the meddling and the injection of one poison pill after another by Congress does not stop. The result of dissolving the USPS will allow privatized firms to replace hundreds of thousands of Unionized postal workers with non-Unionized labor in the private sector, thereby continuing the downward pressure on wages to benefit private sector companies and continue the 30 year war on the middle-class with continued pressure to lower wages and benefits of the average worker.
The average consumer should expect an immediate and substantial hike in their delivery costs If the private sector manages to seize total control from USPS. What could possibly be the logic and rationale to force the USPS out of business? Could it be the price of this service? No, USPS is far less expensive with overnight packages being roughly 40 plus percent cheaper and a standard letter being roughly 90% cheaper than private delivery companies. Could it be the tremendous cost to the federal government? No, USPS is structured like a business, in that revenues from the sale of postal products generally cover costs, and it receives virtually no federal appropriations. Could mismanagement be the cause? No, the USPS is very efficient and effective and provides service to all Americans, without exception and it accomplishes this even with the constant meddling by the U.S. Congress. One of the primary complaints listed by the opponents of USPS is that it's a monopoly. In this case, ask yourself; What are the private sector delivery services attempting to create? The answer is simple, a (cooperative) monopoly. The difference is, the private sector monopoly would be far more expensive, less effective and would not serve all Americans. Americans should also realize the United States Postal Service (with Congressional oversight) is addressed in the constitution, UPS, FEDEX and DHL are not.
The next potential Military Industrial Complex like industry will be the privatization of our nations jails and prison facilities. Prison privatization is now pushing forward with potentially devastating repercussions and has been on the rise for 25 years now. Prison populations have increased by 500% over the past thirty years. Most of this exponential growth has been directly associated with the utterly failed 'war on drugs', however, laws in support of increased profits for prison privatization will most likely become more numerous, less fair and prison sentences may become much longer to ensure increased profits, both for the owners of prisons and their potential use of prison labor for private sector firms at slave level wages.
Prison privatization is a particularly terrifying situation because this not only threatens the potential for corruption of government and the judiciary, but also threatens the personal liberty of the average American, all in the name of corporate profits. It's a terrifying thought to tie something as invaluable as personal liberty to that of a bottom-line profit for a large corporation. Owners of private prisons insist they will not engage in lobbying activities of the government or the judiciary and that this is prohibited by law. This may be true at this time because private prisons now represent a small share of control (about 7%), compared to that of our government, however, one must imagine that as their share of control increases, so does the potential for corruption and political influence increase. If this does happen, who will stop them and is it really worth betting our fellow citizen's freedom on?
Governmental privatization in general is a threat to the security, stability and economic strength of the United States. Government should do Government's work. In cases where governmental privatization is appropriate or allowed, contracting should be tightly controlled and meticulously researched prior to engaging in any form of government contracting. The government may also wish to consider the following list of cautions, if governmental privatization is to be used in the future.
1). Government MUST NOT privatize institutions that threaten the safety, health or personal freedom of the average American. In addition, the privatization contract must demonstrate the savings to taxpayers and how service quality and cost reduction has been improved under the contract for the end consumer. Privatized companies should be required to release this report annually.
2). Government MUST make no-bid contracts illegal under all circumstances and there should be a solid plan in each contract to revert back to governmental production if necessary.
3). Government MUST not sell, lease or make available to private-sector businesses any publicly owned land, forests, national parks or publicly held resources owned by the government (The People). Current and future government leases permitted by law should be thoroughly reviewed to ensure maximum benefit to both the U.S. Government and the private-sector with the least impact on quality of life for present and future Americans.
4). Government should Increase punishments for white-collar crimes and strictly enforce them.
5). Government should enhance anti-trust laws and strictly enforce them. Lack of enforcement by the government has been the primary cause of failure of privatization in the past.
6). Government should charge an annual monitoring fee based on anticipated cost to the government. This fee should be added to all contract bids automatically and should allow for adjustments to monitoring costs, if necessary. Taxpayers should not be monetarily responsible for the cost of this necessary function.
7). Government should retain a minimum of 20% government control of all privatized industries by which to accurately judge cost, performance and quality standards against a known competitive base.
8). Government should establish a minimal living-wage and benefits package that all contracting companies must provide to employees who are engaged in government contracts.
9). Government should run it's affairs more like a profit-centered enterprise. This would entail insistence on high standards of performance from all contractors engaged in government work and consistently enforce these standards without compromise.
10). Government should monitor the weaknesses and inadequacies of privatized contracts and develop additional laws or regulations as necessary.
11). Government must ensure that all costs of maintenance, production and all potentially hidden costs that may redound, if not considered, to the federal government and should be added to the initial agreement/contract, down to who will pay for snow-removal if necessary.
12). Any and all government subsidies used for privatization should be meticulously reviewed for fairness and the potential benefit and return on investment for the average American.
America is now at a crossroad. Do we again place value and trust in our government or will we place trust in the private business sector to intelligently and fairly run our nation's most important functions? The general rhetoric since former President Ronald Reagan suggests that government cannot be trusted and the private business sector may be relied upon to solve all of our nations problems. This assertion is perhaps as absurd as the concept of governmental privatization itself, which seeks to place business in the position of total power and economic strength. The historical record indicates that private industry is ill equipped to efficiently and effectively perform vital functions of government without engaging in political corruption, crony capitalism and the degradation of the standard of living for working Americans. The actual intent of privatization in the long run is to shrink the size of government in a very unhealthy way and then, in the now infamous words of conservative lobbyist Grover Norquist, “I don't want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”
In closing, the government has been the only consistent driving force in our nation from the beginning and should be defended for it's tremendous accomplishments and overall value to the average American. The U.S. Government has kept this country prosperous and safe for 224 years now. It has fought and won numerous wars when our country was threatened by outside forces. It has been instrumental or responsible for the development of many of the patents issued that have dramatically improved the lives of not just Americans, but people all over the world. It has kept Americans safe through the implementation of Police, Fire and emergency personnel. It developed the internet that businesses tremendously profits from. It built, first the railroads and telegraph and then our modern system of roads, super highways, bridges, telecommunications and all the other infrastructure that makes modern life more comfortable, profitable and stable.
The U.S. Government has brought about an environment of equality for all of it's citizens and the opportunity to grow and prosper in a country that places the citizen's rights above that of the government. It has placed a man on the moon, fostered educational and research grants and publicly funded Universities, which have conquered diseases, extended life and increased prosperity through modern medical, technical and scientific advancements that have allowed private industry to thrive and handsomely profit from a collective will of our people that we should affectionately call our government.
As one of our nation's Founders, the second president of the United States, John Adams eloquently stated:
"Government is instituted for the common good; for the protection, safety, prosperity, and happiness of the people; and not for the profit, honor, or private interest of any one man, family, or class of men; therefore, the people alone have an incontestable, unalienable, and indefeasible right to institute government; and to reform, alter, or totally change the same, when their protection, safety, prosperity, and happiness require it."
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