Quote of the Day: True Privatization

As Sheldon Richman explains, what American politicians pass off as “privatization” is usually merely government contracting. Government outsourcing now permeates the military establishment, schools, social service agencies, prisons, and even regulatory enforcement. Hiring private contractors, as Richman points out, does not shrink the size of government or the scope of government services; if anything, it expands it by allowing the government to do ever more. The “privatization” that is merely government outsourcing creates incentives for private firms to lobby for the expansion of the relevant government services—besides the private prison operators lobbying for longer sentences and more criminalization, other entrepreneurs lobby for the state to start new social service programs that the contractors expect to run, and so on. Such contracting has the additional insidious result of skewing tangential markets in the private sector, because the large firms that get lucrative government contracts can then underprice (and eventually eliminate) their competitors in other markets, using the taxpayer dollars they receive as leverage rather than competing fairly.

Worse, outsourcing often is a bad deal for the taxpayers—one-quarter of federal contracts have no competitive bidding (thus, no competitive pricing), and many firms that lock in a government contract can later raise the price dramatically, knowing that the agency involved cannot easily switch to another contractor. The government is certainly less efficient than the private sector; but less efficient still is the government hiring the private sector to do the government’s job. True privatization is the government withdrawing from a field and leaving it entirely to the private sector. 

(italics original, bold mine)

This superb insight is from South Texas College Professor of Law Dru Stevenson at the Cato Unbound on the discussion about Privatization.

Government outsourcing or pseudo privatization, e.g. Public Private Partnerships, leads to the gaming of the system that leads to the the feedback mechanism of the expansionist state and crony capitalism.