Supposedly, privatization of public assets will save you money because the profit motive will cause costs to be cut. So we taxpayers get a cheaper product or service.
Wrong.
Getting government out of the picture may lower some costs. But privatizing something adds HUGE costs that far outweigh any savings. Why?
Well, government isn't making a profit. It is service-oriented. So you'll always get what you are expecting, even if it isn't the most efficient operation in the world.
Private entities are only in business to make a profit. So suddenly there is this huge cost--a profit--that we never had to pay before. And since profits seem to come first lately, your services will get cut also. So you'll lose service, AND you'll pay more.
Privatization of public lands, public water systems, military support operations, social security, health care, de-regulation of public assets and industries, outsourcing of government jobs, and privatizing schools are all going to do two things: give you bad service, and cost you more. If you need some examples, see articles in any progressive magazine such as Mother Jones. Or just watch the darn news. It is happening everywhere.
Now if you require competition, cap salaries, profits, or even only outsource and privatize to nonprofits, then maybe there is a discussion worth having about this issue. But probably not, because you still need government oversight of the contracts, which is a new cost you didn't have when the government was running things.
Natural Resources Economics / Policy 101: Markets often work well to efficiently allocate rival, access-controlled goods and services. Governments often work well to regulate non-rival, open-access resources. A mixture of government and markets may work well for mixes of the two. Many resources are congestible, that is at low levels of use they are non-rival but at higher levels they become rival (such as outdoor recreation).
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Consumption: |
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| Rival | Non-Rival | ||
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Property |
Controlled Access |
Markets Work Well (water) |
Combo may work (postal service) |
| Open Access |
Combo may work (ocean fisheries) |
Public Goods (outdoor aesthetics) |
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That being said, the conflict is between efficiency (markets ensure) and equity (govt. ensures). Ownership is essential for markets to function, as are other basic free market assumptions (property rights well defined, buyers & sellers well informed, competition exists, low transaction costs). Both governments and markets can fail.
| Reasons for Government Failure | Reasons for Market Failure |
| 1. Weak oversight from citizens 2. Interest groups/ money dominates/corrupts 3. Shortsighted elected officials (focus on re-election) 4. No incentive to be efficient |
1. Externalities (pollution, subsidies) 2. Imperfect competition 3. Imperfect knowledge 4. Inequity in wealth distribution |
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Gregory J. Reis
