Fiscally Pressured Governments go for Crony based Privatizations of ‘Public Goods’

Money pressured governments are looking to privatization of parts of politically sensitive functions such as security services.

The Telegraph reports,

Private companies will be running large parts of the UK's police service within five years, according to the world's biggest security firm.

David Taylor-Smith, the head of G4S for the UK and Africa, said he expected police forces across the country to sign up to similar deals to those on the table in the West Midlands and Surrey, which could result in private companies taking responsibility for duties ranging from investigating crimes to transporting suspects and managing intelligence.

The prediction comes as it emerged that 10 more police forces were considering outsourcing deals that would see services, such as running police cells and operating IT, run by private firms.

Privatization of government functions are akin to Public-Private Partnership (PPP) enterprises on political controlled or regulated sectors. They really NOT about free markets but about cronyism.

As I previously pointed out

PPP’s signifies as politically privileged economic rent/concessions to favoured private entities that will undertake the operations in lieu of the government. They will come in the form of monopolies, cartels or subsidies that will benefit only the politically connected.

Since the private partner partnerships aren’t bound by the profit and loss discipline from the consumers, the interest of the private partners will most likely be prioritized or aligned to please the whims of the new political masters.

And because of it, much of the resources that go into these projects will not only be costly or priced above the market to defray on the ‘political’ costs, but likewise, they will be inefficiently allocated.

Moreover, PPPs risk becoming ‘milking cows’ for these politically entitled groups and could be a rich source of corruption.

In the US even Keynesian high priest, Paul Krugman, who I vehemently disagree with on most issues, resonates with our perspective over the issue of phony privatizations (in Krugman’s case he refers to New Jersey’s “new kind of privately run halfway house” prison systems).

From Paul Krugman (hat tip Bob Wenzel, bold emphasis added)

So what’s really behind the drive to privatize prisons, and just about everything else?

One answer is that privatization can serve as a stealth form of government borrowing, in which governments avoid recording upfront expenses (or even raise money by selling existing facilities) while raising their long-run costs in ways taxpayers can’t see. We hear a lot about the hidden debts that states have incurred in the form of pension liabilities; we don’t hear much about the hidden debts now being accumulated in the form of long-term contracts with private companies hired to operate prisons, schools and more.

Another answer is that privatization is a way of getting rid of public employees, who do have a habit of unionizing and tend to lean Democratic in any case.

But the main answer, surely, is to follow the money. Never mind what privatization does or doesn’t do to state budgets; think instead of what it does for both the campaign coffers and the personal finances of politicians and their friends. As more and more government functions get privatized, states become pay-to-play paradises, in which both political contributions and contracts for friends and relatives become a quid pro quo for getting government business. Are the corporations capturing the politicians, or the politicians capturing the corporations? Does it matter?

The point, then, is that you shouldn’t imagine that what The Times discovered about prison privatization in New Jersey is an isolated instance of bad behavior. It is, instead, almost surely a glimpse of a pervasive and growing reality, of a corrupt nexus of privatization and patronage.

Additional thoughts:

This is proof that governments have really been getting desperate over their state of finances.

But, privileges are hard to let go. Instead, politicians have used austerity from today’s crisis as opportunity to dispense concessions to friends, allies or favored special interest groups for political goals. This signifies a form of economic fascism

Politicians use accounting trickery to shield reforms.

Moreover, such privatizations represent fundamental admissions that even the most sensitive ‘public goods’, whether security or defense and prison services, can be delegated or outsourced to the private sector. This implies that these services can be depoliticized and delivered, through the competitive marketplace or (hold your breath) even without government.

The answer isn't to privatize (euphemism for fascism-cronyism) but to depoliticize and liberalize the sector.

Lastly, these are writings on the wall in favor of the growing forces of decentralization.

When governments become totally bankrupt then the de-politicization or decentralization process of political functions will become apparent.