Privatizing Government Services

December 8, 2017 – Volume 27, Issue 43
Do business-run public services save taxpayers money? By Reed Karaim

Introduction

Demonstrators in Boston on March 13, 2017 (Getty Images/The Boston Globe/David L. Ryan)  
Demonstrators in Boston on March 13, 2017, protest plans to let private firms handle driver and maintenance jobs for the city's public transit system. Supporters say privatization saves money and spurs innovation, while opponents say it does not always save money and that private businesses should not control vital public services. (Getty Images/The Boston Globe/David L. Ryan)

President Trump has said he wants to turn over certain public functions, including air traffic control, to profit-making private contractors. While his specific intentions remain unclear, supporters of privatization contend it would save money and inject competition into what they claim is a bureaucratic system that lacks efficiency and innovation, discourages cost cutting and falls prey to political whim. Opponents argue, however, that privatization often fails to reduce costs and undermines democracy by putting private business in charge of vital public services. Republican President Ronald Reagan advocated privatization in the 1980s, and it has grown under both Republican and Democratic administrations to include charter schools, municipal water systems and military operations. Still, some of the fervor for privatization has cooled in recent years, especially after studies found higher rates of civil rights abuses, medical neglect and assaults on guards in privately run prisons than in government facilities.

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Overview

President Trump arrived in office as a champion of privatization — letting private industry finance and manage many government services and projects.

Trump's $1 trillion privatization plan includes giving incentives to state and local governments to sell airports, bridges or highway rest stops to private companies, which would then recoup their costs through tolls and other fees.1

Yet, in a meeting with Democratic lawmakers in September, Trump indicated he had changed his mind, specifically about public-private partnerships, in which investors pay for infrastructure in return for future profits. “He dismissed it categorically and said it doesn't work,” said Rep. Brian Higgins, D-N.Y., who attended the session.2

The president's apparent ambivalence about at least some types of privatization reflects a larger debate in U.S. policy circles about the effectiveness of the approach. Proponents say turning over government responsibilities to private enterprise lowers costs and improves efficiency by bringing competitive forces to bear. Opponents say it often allows corporations to profit at taxpayers’ expense by giving them monopolistic control over assets that should be publicly held, weakens government oversight over those assets and undermines democracy.

“People are harmed by badly run government programs,” wrote E. S. Savas, a father of the U.S. privatization movement, in his landmark 2000 book, Privatization and Public-Private Partnerships. “The purpose of privatization is to improve government performance and thereby improve the lives of those most dependent on government, while saving money and improving services for all taxpayers.”3

Garbage collection in Seattle is handled by Waste Management Inc. (Getty Images/Bloomberg/David Ryder)  
Garbage collection in Seattle is handled by Waste Management Inc., which serves 21 million customers in the United States and Canada. Privatization first gained popularity in the United States in the 1980s, when city officials found that garbage collection by private firms was more economical than by city workers. (Getty Images/Bloomberg/David Ryder)

But critics say studies have raised doubts about the savings and quality of the services rendered by private companies. More fundamentally, they say, privatizing government services can remove them from the control of elected officials and the voters.

“The government exercises sovereign powers,” wrote Paul Verkuil, a legal scholar and author of Outsourcing Sovereignty: Why Privatization of Government Threatens Democracy and What We Can Do About It. “When those powers are delegated to outsiders, the capacity to govern is undermined.”4

Privatization has become a significant force at all levels of government since the 1980s. Private companies now operate prisons, public charter schools, municipal water systems, highways, public parking, trash pickup — and even traffic enforcement through private traffic cameras.5 Private security forces served in Iraq during U.S. military involvement there, and the Internal Revenue Service (IRS) began using private agencies to collect unpaid taxes this year.6

“It's become accepted. You really see it everywhere now,” Savas says.

Both advocates and critics of privatization cite examples to support their views. For instance, critics cite the case of Chicago, which has leased its parking meters to a private company for 75 years to obtain a much-needed $1.16 billion infusion of cash. The city's inspector general later found that Chicago had leased the meters for nearly $1 billion less than what they would generate in revenue over that 75 years.7

Privatization proponents cite a public-private partnership between Virginia and a financial and construction consortium to build express toll lanes and other improvements on a crowded section of Interstate 66 outside of Washington, D.C. The project is expected to save the state $2.5 billion in construction and maintenance costs.8

The state “knew what they wanted to get done,” says Robert Puentes, president and CEO of the Eno Center for Transportation, a think tank in Washington. “They figured out what it would cost them and they said, ‘Let's put it out for bid and see if somebody else can provide a better deal.’”

Government privatizes in three ways:

  • Selling off public property to private enterprises, often to free government officials from the burden of managing the property while providing a one-time shot of cash for government agencies.

  • Establishing private-public partnerships, in which investors pay for building or maintaining a highway, bridge or other public asset in return for long-term profits, often collected through tolls or other fees.

  • Outsourcing public services, such as trash pickup or data management, by hiring a private contractor to provide the services.

Outsourcing has been one of the most popular vehicles for privatizing governmental responsibilities. According to one estimate, about $1 trillion of the $6 trillion in annual federal, state and local government spending goes to private contractors, according to Donald Cohen, executive director of In the Public Interest, a policy and research institute in Oakland, Calif., that is a foremost critic of privatization.9

Local governments have been particularly attracted to the privatization model, with private contractors providing nearly 40 percent of municipal services in 2012, according to research by Mildred Warner, a professor of city and regional planning at Cornell University in Ithaca, N.Y.10

But the federal government also has increasingly turned to private companies. The administration of President Ronald Reagan, who ran for office promising to shrink the role of government, gave life to the modern privatization movement at the federal level in the 1980s.11 Still, the trend to use private contractors has grown during both Republican and Democratic administrations.

The growth was particularly strong in the first decade of the 21st century, as the U.S. government expanded the use of private contractors during the war and reconstruction in Iraq. In 2000, federal contracting stood at about $200 billion. It grew to about $550 billion in 2011, before falling back to less than $450 billion in 2013, the latest year for which figures are available. Sixty percent of that money went for services.12

The growth of privatization has been accompanied by a corresponding reduction in the federal workforce. In 1984, at the end of Reagan's first term, there were roughly 2.2 million federal workers. When President Barack Obama took office 25 years later, there were 200,000 fewer, although the nation's population, economy and federal budget had all grown significantly. The decline has led some analysts to suggest the government faces a shortage of necessary employees.13

While many privatization advocates support the idea of shrinking the number of full-time government employees, critics say that even when services are outsourced, federal workers are still needed to manage and monitor contractors to ensure they are meeting expectations and serving the public good.

“The question is always in the standards, the oversight, the accountability,” says Cohen.

The line graph shows the number of state and federal prisoners in privately run facilities, from 2000 to 2015.  

Long Description

Privately managed state and federal facilities held 117,300 inmates in 2015, down from nearly 130,000 in 2008.

Source: “Publications & Products: National Prisoner Statistics (NPS) Program,” Bureau of Justice Statistics, undated, https://tinyurl.com/ycfmked7

Data for the graphic are as follows:

Year Number of State Prisoners Number of Federal Prisoners
2000 76,100 9,400
2001 72,600 19,300
2002 73,600 20,300
2003 73,800 21,900
2004 73,900 24,800
2005 80,900 27,000
2006 86,000 27,700
2007 92,600 31,300
2008 96,300 33,200
2009 95,200 25,300
2010 94,100 25,200
2011 92,400 29,800
2012 96,800 31,500
2013 92,200 31,900
2014 91,700 30,500
2015 91,300 26,000

The debate is likely to intensify in 2018. While Trump may have doubts about the effectiveness of private-public partnerships, his administration still supports privatizing the nation's air traffic control system, parts of the Department of Veterans Affairs’ health care services and federal prisons.

As analysts, lawmakers and the public consider the pros and cons of privatization, here are some of the questions being asked:

Does privatizing government services save taxpayers money?

The single biggest argument made by advocates of privatizing government services is that it saves taxpayers money while providing for superior service through better-run operations.

Privatization's proponents say introducing competition through a bidding process leads to more efficient operations compared to government offices and departments, which they say operate as de facto monopolies.

The Reason Foundation, a libertarian, pro-privatization think tank in Los Angeles, says a review of more than 100 studies of outsourced government services found savings ranging from 5 percent to 50 percent.14 “The evidence from competitive contracting of municipal services [and] state services is that in extreme cases [savings] can be 50 to 60 percent, but more likely, … 20 to 30 percent,” says Robert Poole, director of transportation policy at the foundation.

However, other studies cast doubt on the savings from outsourcing. At the federal level, a 2012 study by the Project on Government Oversight, a watchdog group in Washington that monitors waste in federal spending, concluded that contracting out services was, on average, nearly twice as expensive as it would have been to pay federal employees to do the work.15

Conversely, at the municipal level, a report by In the Public Interest, the think tank that is skeptical of privatization, found that outsourcing often achieved savings by paying privates employees less and providing fewer benefits. “A growing body of evidence and industry wage data suggest an alarming trend: Outsourcing public services sets off a downward spiral in which reduced worker wages and benefits can hurt the local economy and overall stability of middle and working class communities,” the report concluded.16

Views also are split over having private companies invest in public infrastructure. Poole says studies have found that letting a private contractor build and manage highways through a public-private partnership can save from 10 percent to 30 percent, and, he says, such partnerships provide other benefits that do not necessarily show up in the initial financial equation.

“Maintenance is built in and guaranteed [in the contracts], and one of the biggest problems we have with highways is deferred maintenance,” he says. Private financiers recognize the need for a maintenance reserve, Poole continues, “because they know if the toll road is competing with free roads and it's not in tip-top shape, they're not going to get the business.”

But Elizabeth McNichols, a budget analyst with the Center on Budget and Policy Priorities, a liberal Washington think tank, says because private investors need to make a profit on their infrastructure projects, it is unlikely that significant savings will materialize. “I don't think, generally, the taxpayer comes out well because the private sector is going to invest in something where they feel like they can make profit,” she says.

Although Trump has not spoken publicly about his changing views on public-private partnerships since the meeting with Democrats in September, an unnamed White House official said after the meeting that there are “legitimate questions” about a public-private approach, which is “certainly not the silver bullet for all of our nation's infrastructure problems.” The administration would continue to consider all viable options, the official said.17

Kevin DeGood, director of infrastructure policy at the Center for American Progress, a liberal Washington research and policy group, questions the logic of private financing “at this time.” He says that since governments currently can borrow money at extremely lost cost — by issuing bonds at about 3 percent — it makes more fiscal sense for states and cities to pursue projects on their own.

“Private equity investors in infrastructure projects are … looking [for return] rates of 12 to 15 percent,” he says, or about four times the cost of government borrowing the money and doing it themselves.

The chart details public-private projects completed or in progress in 11 states and Puerto Rico.  

Long Description

Public-private infrastructure projects are widespread across the continental United States and Puerto Rico, with billions of dollars in roads, bridges and tunnels completed or in progress. Texas, Florida and Virginia have the highest total dollar value in projects.

Source: “Interactive Map: New Build Facilities,” Center for Innovative Finance Support, U.S. Department of Transportation, Federal Highway Administration, Aug. 2, 2017, https://tinyurl.com/yat44o3t

Data for the graphic are as follows:

State Total Cost of Projects Projects Completed or in Progress
Texas $7.5 billion North Tarrant Express 35W (segments 3A and 3B), $1.6 billion
    SH 130 (segments 5–6), $1.3 billion
    North Tarrant Express I-820 and SH 121/183 (segments 1 and 2A), $2 billion
    LBJ Express, $2.6 billion
Florida $5.2 billion I-4 Ultimate, $2.3 billion
    I-595 Corridor roadway improvements, $1.8 billion
    Port of Miami Tunnel, $1.1 billion
Virginia $5.1 billion Dulles Greenway, $350 million
    Capital Beltway High Occupancy Toll (HOT) lanes (I-495), $2.1 billion
    Elizabeth River tunnels (Downtown/Midtown Tunnel), $2.1 billion
    I-95 HOV/HOT lanes, $923 million
California $1.6 billion Presidio Parkway (Phase II), $852 million
    SR-91 express lanes (Now under public management and operation), $135 million
    South Bay Expressway (Now under public management and operation), $658 million
New Jersey/New York $1.4 billion Goethals Bridge replacement, $1.4 billion
Indiana $1.3 billion Ohio River bridges East End Crossing, $981 million
    I-69 Section 5, $325 million
Pennsylvania $899 million Pennsylvania Rapid Bridge Replacement Project, $899 million
North Carolina $655 million I-77 express lanes, $655 million
Colorado $521 million U.S. 36 express lanes (Phase II), $521 million
Ohio $429 million Southern Ohio Veterans Memorial Highway, $429 million
Puerto Rico $127 million Teodoro Moscoso Bridge, $127 million

A 2012 study by the nonpartisan Congressional Budget Office (CBO) found that public-private partnerships “have built highways slightly less expensively and slightly more quickly, compared with the traditional public sector approach.”18 However, when factoring in other considerations, such as the risk that taxpayers will ultimately have to pick up losses from failing projects, the CBO concluded, “the cost of financing a highway project privately is roughly equal to the cost of financing it publicly.”19

McNichols believes that contracting with private construction companies, whether through outsourcing or private-public partnerships, builds in another layer of expenses that do not show up in the contract price. “With privatization, if you're doing it right, you have to put out bids; you have to monitor the project; you're creating a whole set of costs on top of government doing the job itself.”

But Puentes, of the Eno Center for Transportation, says public officials can take the cost of management into account when considering bids, and with a well-written contract can still find solutions that benefit both taxpayers and investors.

“You can figure out ways you can take advantage of private sector expertise and resources and public expertise to meet both public and private goals,” he says.

Does privatization make government less accountable to voters?

A fundamental area of disagreement between privatization skeptics and supporters is whether the public will be able to adequately monitor and control what is happening with their tax dollars

“When power is shunted into private hands, there is less opportunity for public engagement, public participation,” says Jon Michaels, a professor of law at the University of California Los Angeles (UCLA) and author of Constitutional Coup: Privatization's Threat to the American Republic. “We're just seeing a greater sense in which government is not a shared enterprise.”

While government bureaucrats are often maligned, Michaels says, “Civil servants are servants of the state” and, in a democratic government, they must respond to the competing forces in the political process — internal pressures from lawmakers and other government officials as well as external pressures from public interest groups and engaged citizens. Private contractors, he says, answer first to their owners or shareholders and secondly to their government administrators.

Separating government operations from the civil service and democratic process represents a fundamental challenge to the American way of government, Michaels argues.

But privatization's supporters believe private contractors are more responsive to the public's needs and wishes than public officials and administrators. Privatization “makes government more accountable. This is true for all kinds of government services, including municipal services,” the Reason Foundation's Poole says. “Most city governments, when they're the monopoly provider, tend not to have quantitative performance measures, and they certainly don't hold managers of those services accountable. When you do a contract for street sweeping or garbage collection, you put in performance indicators [that must be met.] Studies have found this makes possible huge improvements in performance, and it means the companies are being held accountable.”

Poole believes the same is true for public-private partnerships used to build and operate toll roads and other infrastructure. “You build in all kinds of performance requirements and penalties,” he says. For instance, the lease for the 156-mile Indiana Toll Road has “standards for the maximum number of hours a dead animal can be on the road before it has to be cleared, and for pavement quality, pavement roughness, etc. This creates much more accountability.”

Privatization opponents, however, point out that Indiana originally leased the toll road to an international consortium in 2006 for 75 years, but the consortium went bankrupt in 2014. Vice President Mike Pence championed the controversial project when he was governor of Indiana. While Pence boasts that Indiana got corporations to invest in infrastructure that would otherwise have been funded by taxpayers, opponents say Indiana sold off valuable public assets that were then badly mismanaged.20

The line graph shows U.S. armed forces and contractors in Afghanistan, from 2007 to 2017.  

Long Description

The Department of Defense employed more than 25,000 private contractors in Afghanistan at the end of 2016, more than twice the number of U.S. troops. U.S. armed forces figures include all active and reserve personnel.

Source: Heidi M. Peters et al., “Department of Defense Contractor and Troop Levels in Iraq and Afghanistan: 2007–2017,” Congressional Research Service, April 28, 2017, https://tinyurl.com/lch975o

Data for the graphic are as follows:

Quarter Fiscal Year Number of U.S. Armed Forces Number of Private Contractors
Q4 2007 24,056 29,473
Q4 2008 33,450 68,252
Q4 2009 62,300 104,101
Q4 2010 96,600 70,599
Q4 2011 98,200 101,789
Q4 2012 76,500 109,564
Q4 2013 55,800 85,528
Q4 2014 27,800 45,349
Q4 2015 9,100 30,211
Q4 2016 9,800 25,197
Q1 2017 Not Yet Available 26,022

Aman Banerji, a program manager at the Roosevelt Institute, a liberal think tank in New York, says the kind of standards Poole referred to do not always exist: “Often, … private contractors are not held to the same standards that public institutions are.” This is particularly true, he says, for privately operated charter schools, which receive public money but often do not have to meet the same standards as other public schools.21

Other analysts say contracting makes government both less responsive and less transparent. “You're increasing the distance between the person who wants the work and [who] does the work,” says In the Public Interest's Cohen. “You're adding layers of bureaucracy and putting up walls — contractors have claimed they don't have to let the public know what they're doing because it involves trade secrets.”

For example, he says, the private consortium that built State Highway 130, a toll road in Texas, went bankrupt last year, leaving the state to assume responsibility for the crumbling road. The investors refused to release the traffic projections they made when taking on the project, which they said had made the road feasible.22 “There are times when we [taxpayers] want something that's important information, and they say you can't have it,” Cohen says.

But Chris Edwards, director of tax policy studies at the Cato Institute, a libertarian think tank in Washington, counters that if governments fail to require transparency from private partners it is not the fault of privatization. “State governments can write bad public-private-partnership contracts just like they can write bad contracts under their regular procurement practices,” he says. “It's unfair to say private-public partnerships are worse, or this is a new problem.”

Rather, he says, “Government bureaucracies are secretive and often less transparent than nonprofit entities or publicly traded corporations.”

Savas, who is a public policy professor at Baruch College in the City University of New York system and worked in New York City government in the 1970s, agrees. He says protections afforded to unionized public employees can make them indifferent to consumers. Privatization, he says, removes “a layer of power that prevents effective response to public complaints.”

But DeGood, of the Center for American Progress, says privatization can make government less responsive to the public by distorting the decision-making process toward projects likely to provide a good return for investors. Government, he says, should be focusing on citizens’ needs. For example, he says, less prosperous areas might most need improved infrastructure, but private investors might see such areas as risky for investment because they may provide a lower rate of return.

“If you construct a problem as simply a narrow business one, you're going to get one answer,” DeGood says, but politics and governing are hard because business factors “aren't the only considerations.”

Do toll roads and other pay-to-use projects hurt low-income citizens more than others?

Privatizing infrastructure often involves imposing tolls or user fees to cover the cost of building, managing and maintaining the facility and provide profits to investors. And if the private companies take over existing services, such as water and sewage treatment facilities, a higher rate structure can result.

“What you see in privatization is increased fees and increased costs,” says Cohen, because money that could be directed to a service gets diverted to profits, CEO salaries and debt service if the company borrowed money to buy the property.

For example, he says, after Coatesville, Pa., privatized its water services, “the rates went way up, and [some customers] were forced into bankruptcy.” A New York Times investigation in 2016 documented several cases in which private companies raised rates significantly after taking over municipal water systems.23

An earlier study by In the Public Interest examined rate hikes that followed the privatization of 10 large municipal water systems in the late 1990s and early 2000s. After 11 years of private control, water bills in the communities had nearly tripled, and those increases fell most heavily on the poorest parts of the population, according to Cohen.24

Spokespeople for the private companies say many of the systems they acquired were sold by cash-strapped municipalities that had not been maintaining the facilities properly, requiring significant investments to meet or maintain public health standards.

“Keeping rates down may sound like the ultimate righteous good for ratepayers, but the truth is, not if you're failing to provide basic care and maintenance,” said Megan Matson, a partner at Table Rock Capital, a private equity firm that invested in the water and sewage system in Rialto, Calif.25

Privatization's critics say economic inequity can also become most pronounced on toll roads, especially those where drivers can pay extra for access to special lanes that allow them to avoid congestion. Popularly dubbed “Lexus Lanes,” they have proven controversial. “This is a plan for the ‘highway of the 1 percent,’” said Stewart Fefer, a Floridian who participated in a protest against a planned toll lane on an interstate highway in Tampa.26

A driver pays a toll in Ocala, Fla. (Getty Images/Universal Images Group/Jeffrey Greenberg)  
A driver pays a toll in Ocala, Fla. Privatization has grown in recent years under both Republican and Democratic administrations to include charter schools, privately operated municipal water systems, military operations, corporate-owned toll roads and prisons. (Getty Images/Universal Images Group/Jeffrey Greenberg)

But the Reason Foundation's Poole says the data from the transponders used by drivers to pay tolls indicate that most people who set up accounts to access the lanes use them sparingly. “Most people use the pay lanes for a specific purpose,” he says, such as “when the value of being on time is greater than the cost of paying the toll: if you're running late to pick up your kids from daycare, for example. So ordinary people, not just the affluent, see opportunities where it makes sense for them.”

Privatization supporters say if drivers want to avoid toll lanes or highways, they can use regular lanes or other, free roads. But critics note that some private infrastructure projects include non-compete clauses that bar the state government from building a free road that would compete with the private highway.

The Cato Institute's Edwards says tolls do not make sense on some roads and that other accommodations, such as increased mass transit, should be incorporated into a private-public partnership plan to ensure that the system serves all taxpayers. But he disputes the idea that tolls are inherently unfair to the poor, citing the recent private investment in Interstate 66 in Northern Virginia as an example.

However, on Dec. 3, when the new I-66 express lanes opened on a 10-mile stretch between I-495 and the District of Columbia, tolls during peak travel times spiked. They reached $40 on the second day of operation, prompting commuters to complain that only wealthy drivers could afford the new lanes. Transportation officials said drivers could avoid a toll by carrying a passenger or using alternative roads, which critics said are congested.27

“If Virginia didn't get the private money for the Beltway expansions, perhaps they would have had to raise their gas tax, which is a regressive tax,” he says. (A regressive tax is one applied uniformly, regardless of the payer's income, so it takes a larger percentage of a low-wage earner's income than from high-income earners.)

However, UCLA's Michaels notes the working class or poorer citizens often have the longest commutes because rents and housing costs are cheaper farther from urban centers. Thus, toll roads force poorer citizens to either pay more or spend more time on the road than drivers who can afford a speedier commute.

Still, Jacob Leibenluft, a senior adviser at the Center on Budget and Policy Priorities, says sometimes toll roads can effectively channel people toward mass transit, reducing traffic congestion and automobile emissions, and thus benefiting the entire community.

“It really depends on the project,” says Leibenluft. “There are places where there might be value in tolls, where we want fewer people to drive.” But if toll roads or express lanes are built to serve a wealthy community, diverting infrastructure priorities toward areas where private investors see the greatest chance for profits, he says, the equation clearly favors the wealthy.

“Anything that discourages investment in communities that have the greatest infrastructure needs and the least ability to pay is going to contribute to inequities,” he says.

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Background

Starting Small

In the early days of the United States, federal and state governments had fewer resources than they do today, and much of what are now regarded as government responsibilities were handled privately.

Education remained largely a private matter until the middle of the 19th century. Although the Massachusetts Colony passed a law in 1647 requiring towns to provide public education, it wasn't until the mid-1800s that the idea of public education began to take hold across most of the nation. Before that, education was often provided at home or through churches, private schools that catered to the wealthy or apprenticeship programs that focused on trades. Public education did not become compulsory in all 50 states until 1918.28

Many of the early nation's roads and bridges also were built by private companies. In some cases, streets and local roads were constructed and maintained by communities, with local citizens required to spend a certain amount of time each month working on them. But from the 1780s through the middle of the 19th century, a nation impatient for a better long-distance transportation system turned to private projects.29

The building spree began with bridges. Fifty-nine private toll bridge companies were chartered in the Northeast from 1786 to 1798. Private turnpikes, or toll roads, soon followed. The first such road, running 62 miles from Philadelphia to Lancaster, Pa., was completed in 1794. By 1810, 398 private turnpikes had been incorporated, mostly in the East. A smaller boom in private tolls would also occur later in the West.30

But at the end of the 19th century and in the first decades of the 20th century, public sentiment began to favor public ownership of roads and bridges. The rise of the Progressive movement, which sought to rein in big business and create greater social equality, expanded the role of government. Most toll roads closed or became part of state highway systems.31

By the 1920s, the transition to public ownership of highways and bridges was complete. “Throughout most of twentieth-century America, roads were widened and new bridges built almost exclusively when politicians appropriated the funds to have the work done,” wrote Henry Petroski, a professor of civil engineering and history at Duke University in North Carolina, in his history of America's transportation infrastructure, The Road Not Taken. 32

Era of Big Government

The Progressive era sparked expansion of the public sector. But the expansion was dwarfed by the explosive growth of the federal government in the 1930s under President Franklin D. Roosevelt's New Deal programs that aimed to help the economy recover from the Great Depression (1929–1939). Dams, public power systems, roads, bridges and public buildings were built with public funds, contributing to dramatic growth of federal responsibility and spending.33

One of the nation's largest public infrastructure projects, the Interstate Highway System, was initiated in the 1950s by President Dwight D. Eisenhower. As a young Army officer in 1919, Eisenhower had crossed the United States to promote the Army's Motor Transport Corps. The 3,200-mile trip from Washington to San Francisco took 62 days. Later, while serving as supreme commander of allied forces in Europe during World War II, Eisenhower was impressed by Germany's controlled-access, high-speed highway system, known as the autobahn. When elected president, he supported an effort to build a similar highway system in the United States, both as a matter of national defense and to improve cross-country transportation.34

In 1956, Eisenhower signed the Federal-Aid Highway Act, which authorized $25 billion for construction of a national Interstate Highway System. To pay for the massive project, the law increased the federal gasoline tax and put the money in a highway trust fund, which financed the federal government's 90 percent share of the highway system, with states paying the remaining costs.35

By the 1980s, when the system was completed, the United States had what was considered the world's best public highway system.

At the time, few people thought about turning over municipally owned utilities, such as water or power systems, to private companies. There were no private prisons or publicly funded, privately run charter schools. But as discontent with government grew in the late 1970s and early '80s, attitudes began to change.

Privatization Movement

Austrian economist Frederick von Hayek is considered the intellectual founder of the privatization movement. In his 1944 book The Road to Serfdom, he argued that government control of economic planning leads to tyranny. While Hayek's work continues to be popular with today's economic conservatives, it had little impact on public policy at the time.36

In the United States, Hayek's ideas were furthered by economist Milton Friedman, whose 1962 book Capitalism and Freedom characterized government as an inefficient and unresponsive public monopoly. Friedman believed privatizing government services would increase competition and improve performance.37 His ideas gained currency in conservative circles as discontent with the quality of public services in some cities led officials to begin experimenting with more privatization.

In 1973 Baruch College's Savas was working as a New York deputy city administrator when Mayor John Lindsay asked him to look into problems with clearing the streets after a major snowstorm. Savas’ examination led him to conclude that the city's sanitation department, which was responsible for street cleaning, would benefit from private competition.

Immigrants and their supporters demonstrate in New York City on Aug. 2, 2017 (Getty Images/Pacific Press/LightRocket/Erik McGregor)  
Immigrants and their supporters demonstrate in New York City on Aug. 2, 2017, holding up photos of families separated when relatives were detained in privately run immigrant detention centers. U.S. Immigration and Customs Enforcement hires private firms to detain immigrants awaiting hearings on their status. (Getty Images/Pacific Press/LightRocket/Erik McGregor)

Although Savas’ proposal failed in the face of opposition from public employees and members of the Lindsay administration, he became a foremost advocate of privatization, publishing more than a dozen books promoting the approach.

Savas says privatization first gained popularity at the municipal level. “One way it spread was starting with solid-waste management, garbage collection,” he says, an area where private contractors were often able to offer less-expensive bids. “In many cities, city councilmen were not full time, they were often businessmen,” he says, “so [they] were very prone to try to use competition in these sectors.”

Privatization, he adds, evolved from there. “The idea started spreading all over the country. It started with outsourcing [and] gradually expanded to the notion of selling off various government assets not being used, which made sense,” Savas says.

Reagan's election in 1980 gave privatization an advocate in the White House. Many in the privatization movement say Reagan was inspired by British Prime Minister Margaret Thatcher. “Thatcher had already started privatizing public enterprises,” explains the Reason Foundation's Poole, also an early U.S. advocate of privatization.

After being elected in 1979, Thatcher had moved to privatize many state-owned ventures, such as energy and steel companies, British Airways and automaker Jaguar — the kind of enterprises that had never been state-owned in the United States.38 The Reagan administration studied the feasibility of privatizing a range of government agencies, including the Postal Service, the air traffic control system, passenger railway Amtrak and other agencies.39

However, facing opposition in a Democratic-controlled Congress, the administration advanced only limited proposals. Reagan did privatize Conrail, the government-owned freight railroad, in 1987.40 But it would take a Democratic president, Bill Clinton, to advance the movement further.

Clinton was elected in 1992 promising to reinvent government and trim 100,000 workers from the federal workforce. He directed Vice President Al Gore to head a special commission to study making government more efficient. The results led to a wave of outsourcing of a wide range of government services to private contractors.41

“Clinton is the first president after World War II to decrease the number of federal employees,” says UCLA's Michaels. He also accelerated the sale of government assets.

“Ironically, there was more real privatization under the Clinton administration than the Reagan administration,” a Reason Foundation report concluded.42 Under Clinton, the federal government sold off the Elk Hills Naval Petroleum Reserve; the U.S. Enrichment Corp., which processed uranium for nuclear power plants; and part of the electromagnetic spectrum that could be used for broadcasting.43

Privatization accelerated further under Republican President George W. Bush, elected in 2000, particularly the outsourcing of military services during the wars in Afghanistan and Iraq. By 2011, the Defense Department had more private contract personnel in the two countries — at 155,000 — than military personnel, who numbered 145,000.44 (See sidebar, p. 1028.)

From 2000 to 2006, U.S. spending on private contractors — both military and civilian — more than doubled, to a record $412 billion in 2006, according to a report prepared in 2007 by the Democratic majority staff of the House Committee on Oversight and Government Reform. “Since 2000, spending on federal contracts has grown more than twice as fast as other discretionary federal spending,” said the report. “For the first time, the federal government now spends over 40 cents of every discretionary dollar on contracts with private companies.”45

The report raised concern about the growing number of government contracts being signed without competitive bidding. It also identified 187 federal contracts with private contractors over six years valued at $1.1 trillion that involved “significant waste, fraud, abuse or mismanagement.”46

In one area — airport security — the government took a decidedly different tack on privatization after the Sept. 11, 2001, terrorist attacks during Bush's first year in office. Within weeks, Congress crafted legislation creating the Transportation Security Administration, which replaced private airport security companies with federal agents at all U.S. airports. President Bush signed the bill into law on Nov. 19, 2001, creating a new federal agency that today has 60,000 employees, including 44,000 screening agents.47 (See sidebar, p. 1030.)

Privatization Backlash

Obama's election in 2008 brought a Democratic administration into office that, analysts say, was less enthusiastic about many aspects of privatization than previous administrations.48 While the new administration supported the continued expansion of charter schools, it began to promote “insourcing,” or using government personnel to perform work previously done by contractors. It also opposed having private companies run federal prisons.

Private prisons had become big business. In 2015, the most recent year for which statistics are available, roughly 8 percent of the 1.53 million people held in state and federal prisons were held in private facilities in 29 states and the federal prison system, an 83 percent jump from 1999, according to the Pew Research Center, a think tank in Washington.49 U.S. Immigration and Customs Enforcement also contracts with private companies to detain immigrants awaiting hearings on their status.

However, a decade of studies by the Justice Department, the American Civil Liberties Union and others had documented problems at private prisons that included more frequent assaults on guards and prisoners than in public prisons, civil rights abuses and medical neglect.50 Some state studies have also shown that private prisons do not save taxpayers money.51

Yet, a peer-reviewed 2014 study by economists at Temple University — commissioned by the corrections industry and published independently — found that, when all costs were taken into account, private state-run prisons did provide savings of between 14 and 58 percent over government-run state prisons.52

Nevertheless, after a government audit found that private prisons had more safety and security problems than government-run prisons, the Obama administration announced in August of 2016 that it would phase out the federal use of private prisons, an order that Trump would later rescind.53

During the Obama administration, the Defense Department also had begun to hire thousands of employees to replace contractors, part of what Defense Secretary Robert Gates termed an effort to shrink a bloated Pentagon bureaucracy that included too many private contractors.54

A backlash against privatization was also emerging in some city governments, fed by cases such as Chicago's parking meter privatization, which is expected to cost the city nearly $1 billion in lost revenue over the life of the contract but also included non-compete clauses that restricted the city's ability to build new parking garages or close streets for festivals.55

The bankruptcies of the companies that built the Indiana Toll Road, once held up as a model of a public-private partnership, and Texas State Highway 130, increased skepticism among some state officials. In 2014, 18 states considered legislation to limit state contracting, and three — Oregon, Nebraska and Maryland — passed laws imposing such restrictions, according to In the Public Interest.56

“The ideological fervor for privatization has ebbed,” John D. Donahue, an expert on privatization at Harvard's Kennedy School of Government, said that year.57

Analysts note, however, that many states and cities continued to turn to privatization. The election of Trump, a former real estate developer, in 2016 also brought a drastic shift in favor of private business at the top level of government.

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Current Situation

Infrastructure Needs

President Trump's 2018 budget in May proposed spending $200 billion for infrastructure over 10 years. Critics noted that it also included $255 billion in cuts of existing infrastructure programs, amounting to an overall reduction in federal infrastructure spending. But administration officials said some of the money being trimmed was for administration and oversight and not for infrastructure.58

The budget did not spell out how federal money would be leveraged with private investment to reach $1 trillion in spending. However, several of Trump's principal advisers, including Pence and Transportation Secretary Elaine Chao, favor relying on private investment.59

Other analysts say any final plan must include privatization. “If they want to get to a trillion dollars, it's going to be really hard for them to do without private finance,” says Cohen, of In the Public Interest, because “the other choice is public finance or, even better, public funding, … and this Congress isn't going to do it.”

Savas believes private capital could provide a much needed boost. “America has great infrastructure needs … and here's an opportunity to tap the private sector,” he says. “As long as it's managed well, the basic idea is good.”

While the administration's infrastructure plan remains on hold, state and local governments continue to privatize highway, bridge and water and sewer projects. In Arizona, Republican Gov. Doug Ducey is asking the U.S. Department of Transportation to allow the state to privatize rest stops along interstate highways, bringing in private businesses such as restaurants or gas stations that would pay to upgrade the facilities. The idea is opposed by the National Association of Truck Stop Owners, which says it would hurt existing businesses operating at rest stops.60

Los Angeles International Airport is seeking a private partner to build, operate and maintain an “automated people-moving system” to transport travelers to car rental facilities as part of a $14 billion upgrade in airport facilities.61

Charter Schools

The charter school movement continues to grow, despite a backlash in some areas. Earlier in the year, Kentucky became the 44th state to allow charters, which are tuition-free, taxpayer-supported independently run public schools. Other states also took steps to increase public funding for charters or to give them access to new revenue streams.62

For-profit companies managed more than 900 charter schools around the United States in the 2014–2015 school year, according to one study.63 Many others are operated by nonprofit entities, some of which contract out their management to private, for-profit companies.64

Since the first charters opened in the 1990s, the movement has grown rapidly, and today 3.1 million students attend more than 6,900 charter schools.65 Education Secretary Betsy DeVos was a leading advocate for charter schools before joining the Trump administration, and the administration has pledged $20 billion to promote charter schools and vouchers that provide aid for students to attend private schools.66

In September, the Department of Education announced it would provide $253 million in grants to expand charter schools. “These grants will help supplement state-based efforts to give students access to more options for their education,” said DeVos.67 The two largest grants went to the Indiana and Minnesota, and $16 million was earmarked to spur the creation of up to 25 charter schools in Oklahoma, nearly doubling that state's count.68

But elsewhere resistance has grown. In New Jersey, the state education department denied two applications for new charters in Paterson, where local activists have opposed them, which they say are siphoning revenue from traditional public schools.69

In November, New York state officials for the first time rejected charter applications for two schools. The state Board of Regents, which is expected to approve several other new charters, said the proposed curriculums in the rejected applications were not innovative and the board feared the charters would drain resources from existing schools, a concern expressed by local opponents to the schools.70

The most heated recent struggle over charter schools has been in Los Angeles, where a coalition led by the teachers union opposed a plan, led by a private foundation, to drastically expand the number of charters in the city.71 In a bitter election last May, charter supporters won a majority on the city's school board after outspending their opponents in the most expensive campaign in the school board's history.72 The new board this fall exempted charter schools from some district rules.73

Charter school supporters say they improve education by creating competition, opening up the education market to alternatives beyond a one-size-fits-all public school system. “They were intended to create a new path, new opportunities and new patterns of accountability. They have done better in all these areas,” said Jeanne Allen, founder and CEO of the Center for Education Reform, a charter advocacy organization in Washington.74

But some education experts say the idea that privatization does a better job is simplistic when applied to education. Privatization can work well for public services when the effectiveness of the contract can be easily measured, said Samuel E. Abrams, director of the National Center for the Study of Privatization in Education at Teachers College, Columbia University, in New York. But privatization does not work well for complex services where effectiveness is hard to measure, he said.75

“In the case of schooling, which is a classic complex service, the direct consumer is a child, who [cannot] judge whether classes are being properly taught,” Abrams said. “The parent, taxpayer and legislator are at a necessary distance. And standardized testing as a check on quality is rife with problems.”76

Privatizing Prisons

The Trump administration's support for private prisons has breathed new life into the industry, analysts say. CoreCivic, the nation's largest private prison firm, recently announced it will be expanding into operating halfway houses.77

After Obama's Justice Department announced it would phase out the use of private facilities for federal prisoners, the stock prices of the two largest private corrections companies, GEO Group and Corrections Corporation of America (now CoreCivic), fell significantly.78 But both stocks rebounded after Trump's election and an announcement by Attorney General Jeff Sessions last February that the administration was rescinding Obama's order.79

Critics say profits depend on keeping facilities full, and many private prison contracts have lock-up quotas that require state or local governments to keep prisons filled to a certain occupancy level — some as high as 100 percent — or pay for the unused beds.80 In addition, a study by In the Public Interest found that prisoners in private facilities had higher recidivism rates.81

“We don't believe privatized prisons should exist, period, or detention centers,” says In the Public Interest's Cohen. Private companies’ interests “are completely contrary to the public's interests,” he added. “They make more money if there's a head in a bed. We don't want heads in beds. We want people to ultimately get out and live productive lives.”

But Amanda Gilchrist, a spokesperson for CoreCivic, says it has begun an effort to reduce recidivism and has lobbied for state and federal policies to bring down the level of repeat offenders. “CoreCivic has made significant commitments to address the recidivism crisis in America that we believe are unmatched by any corrections system — public or private,” says Gilchrist.

The company's goal, Gilchrist says, is to help rehabilitate prisoners. To that end, she say, CoreCivic is committing increased resources to education, vocational training and addiction treatment. “Additionally, CoreCivic has invested $250 million to build an expanding network of residential re-entry centers around the country,” or halfway houses, she says. “These facilities help inmates transition back into their communities.”

Air Traffic Control

Trump supports privatizing air traffic control, transferring it from the Federal Aviation Administration (FAA), which oversees aircraft traffic across the country, into a separate nonprofit corporation.82

The administration's plan is modeled closely on legislation introduced by Rep. Bill Shuster, R-Pa., chairman of the House Transportation and Infrastructure Committee. Shuster's plan aims to modernize the aging air traffic control system, with the costs borne by carriers through user fees established by a 13-member governing board. The idea is supported both by the major U.S. airlines and the air traffic controllers’ union.83

Puentes, of the Eno Transportation Center, says the proposal would allow airlines and airports to make needed long-term investments to upgrade the system, something Congress, because of its annual spending and budget battles, hasn't done. “Congress can't authorize money in the way it needs to for long-term investment,” Puentes says.

Air traffic controllers staff the control tower at Portland International Jetport in Maine on Oct. 26, 2017 (Getty Images/The Portland Press Herald/Derek Davis)  
Air traffic controllers staff the control tower at Portland International Jetport in Maine on Oct. 26, 2017. President Trump supports transferring air traffic control from the Federal Aviation Administration to a nonprofit corporation. Major U.S. airlines and the air traffic controllers’ union support the idea. (Getty Images/The Portland Press Herald/Derek Davis)

By creating a private, nonprofit corporation to manage the system, something several European nations have already done, “you can spin it off from the FAA and set up an entity that can start to deliver this modern system we've been talking about for a long time,” Puentes says.

However, opponents of the proposal, especially those involved in providing air service to small, rural communities, see it as a power grab by the major airlines. “This is an attempt to really get more control over the system and be able to direct the infrastructure investment and resources toward the hubs that they [the major airlines] care about,” says Selena Shilad, executive director of the Alliance for Aviation Across America, a coalition representing small airports, businesses and other groups.

Modernizing the system can be done without privatization if the government adequately funded the FAA, Shilad says. Maintain an equitable system that treats all parts of America fairly is essential, she says.

“The FAA makes sure we maintain public transportation both big and small,” Shilad says. “If you transition that to a governance board that's overseen by private interests, a 13-person board dominated and heavily influenced by the airlines and larger private interests, then we're concerned about how smaller airports would fare.”

Others, such as retired U.S. Airways pilot Sully Sullenberger, famous for landing a disabled passenger jet in the Hudson River in 2009, argued in an op-ed that privatizing air traffic control operations would threaten passenger safety and access to aviation.84

Air traffic privatization also faces powerful resistance from lawmakers wary of giving up federal control of the system, fearing it could leave the major airlines with too much power over commercial aviation. Prospects for the legislation passing are considered uncertain.85

In July, for instance, a Senate Appropriations subcommittee rejected President Trump's proposal, citing concerns that the nonprofit corporation would not have congressional oversight.86

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Outlook

Continuing Pressure

Outsourcing, forming public-private partnerships and selling public assets to private companies are a significant part of how the U.S. government operates. No privatization expert sees that halting over the next five to 10 years, but some believe the trend may slow or face more pushback.

“I can imagine a state of equilibrium developing,” says Baruch College's Savas. “The last time I looked, about 30 percent of American cities had outsourced one or more of their major municipal services. Is that going to grow? I suspect it's going to grow slowly.”

That could change, he adds, depending on the resolution of a case to be heard by the U.S. Supreme Court next year. The court will decide whether unions can require everyone in a unionized workplace to pay union fees. Previous courts have held that mandatory fees were justified because benefits negotiated by a union affect everyone in the workplace.87 The current court is widely expected to overturn that ruling, allowing employees to opt out of paying union fees, which could seriously weaken public employee unions.

“If the Supreme Court ruling makes every state essentially a right-to-work state … it would become easier for cities and states to exercise good managerial judgment and make good policy decisions about when it makes sense to introduce competition into public services,” Savas says. While such a decision would not directly result in more privatization, it could eventually weaken public unions, making more outsourcing possible.

Even though Trump's comments have cast doubt on his commitment to public-private partnerships for rebuilding infrastructure, the Reason Foundation's Poole hopes the administration moves ahead with its original plan to seek significant private investment in new infrastructure.

“The money is sitting there. It's waiting,” he says. “I see this big shortfall particularly of transportation infrastructure. It's a problem waiting to be solved by private investment if we can just get a clear path to let it happen.”

The Cato Institute's Edwards says budget pressures will force the federal government to embrace more privatization. “There's always going to be resistance to tax increases. There's going to be less and less federal money as entitlement programs continue to expand,” he says. “I think there's going to be continuing pressure on the United States to look to privatization.”

In the near term, he believes, successful privatization in one area could lead the government to embrace more of it elsewhere. “To me, air traffic control, if they do that, it will spur lots more similar efforts,” Edwards says.

But UCLA's Michaels says several of Trump's cabinet appointments of people openly hostile to the government agencies they now head, such as Environmental Protection Agency administrator Scott Pruitt, have created a backlash against anti-government rhetoric and privatization.

“Last year, I would have said … there's going to just be this slow trickle away, until one day we wake up and say, ‘Wow we don't have a government,’” Michaels says. “Now, I think people are starting to rally behind the bureaucrats, as silly as it sounds…. We're seeing a rediscovery of an appreciation of a strong, independent civil service.”

The Roosevelt Foundation's Banerji agrees that the Trump cabinet, which includes several members who worked in the industries they are now regulating, is energizing opponents of privatization. More of the public, he says, is aware that “there is this collection of people profiting off government.”

Still, he believes opponents are unlikely to change the federal approach, especially with regard to privatizing air traffic control and other government functions. “I think what we're likely to see in the next five years or so, at the state and local level, is people pushing back very strongly against the privatization of public services,” Banerji says. “But at the national level, we're likely to see the opposite.”

However, Cohen, of In the Public Interest, says it will be difficult to slow down corporate efforts to promote privatization at the local level. “All these companies are bigger and more capable,” he says.

“Twenty-five years ago they didn't know how to work city halls and state governments,” he continues. “Now they know how to do it. There's a whole industry of lobbyists and deal-doers, … and if you're a mayor and they say, ‘I can take your trash off your hands and it will save you money and it will save you headaches,’ you say, ‘Sure.’”

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Pro/Con

Should the U.S. use private capital to rebuild infrastructure?

Pro

Robert Poole
Transportation Policy Director, Reason Foundation. Written for Cq Researcher, December 2017

America's 20th-century infrastructure model is broken and needs replacing. This model calls for separate contracts for design and construction — and leaves maintenance to the vagaries of politics. Far better stewardship results from the newer model, which uses private companies that design, build, finance, operate and maintain (DBFOM) an infrastructure project. Under this approach, the winning company signs a contract to do all those things for terms of 40 to 50 years.

This long-term approach yields much better projects, whether new construction or rebuilding aging facilities. First, design and construction are integrated, which minimizes costly change orders. Second, the same entity that creates the project is responsible for long-term operations and maintenance. That means the design seeks to minimize life-cycle costs, not just initial costs — producing far better value for the money spent. Also, maintenance is guaranteed for the life of the agreement.

Moreover, if customers finance the project through fees, the developer/operator has incentives to design it to attract as many customers as possible, and to serve them well. And this type of financing shifts a major risk from taxpayers to investors.

These differences are especially important for mega-projects, which have a well-documented history of cost overruns, late completion and overly optimistic traffic and revenue forecasts. (Recall Boston's “Big Dig” and any number of urban rail projects.)

If the United States shifted to DBFOM for most or all major infrastructure rebuilding, the benefits would include:

  • Higher infrastructure investment, particularly if the long-term agreements are based on user fees (e.g., Interstate tolls).

  • Getting many needed reconstruction and modernization projects done years or decades sooner, thanks to the availability of private equity capital (more than $300 billion of which has been raised by infrastructure investment funds in the past decade).

  • Better project selection, thanks to more rigorous benefit/cost analysis and the need for the projects to show a positive return on investment (no more “bridges to nowhere”).

  • New federal and state corporate tax revenue, to the extent that the resulting concession companies are profitable.

Moreover, DBFOM infrastructure projects are highly attractive to public employee pension funds that need to diversify their portfolios to earn higher real returns.

If this model sounds familiar, it should: It's how investor-owned electric, gas and water utilities operate. A much larger portion of U.S. infrastructure should adopt this proven model.

Con

Donald Cohen
Executive Director, In the Public Interest . Written for Cq Researcher, December 2017

The infrastructure debate is often convoluted and detached from people's everyday lives, but it's important. At its core, the debate is a battle over crucial public assets and the role of government itself.

That's why privatization must be avoided, whether it's outsourcing the operations or maintenance of public assets, relying on private financing — known as “public-private partnerships” — or selling off what the public owns to private investors and multinational corporations. Not only is privatization often less transparent and more expensive than public ownership, but it also cedes key aspects of public control to the private sector. If we're going to meet the challenges of the 21st century — declining global competitiveness, skyrocketing economic inequality and rapid climate change — we need more democratic decision-making, not less.

Some local and state governments have already turned to privatization with alarming results. Chicago's contract with a Wall Street-led group to run the city's downtown parking meters requires the public to make up for lost revenue from policy changes such as new bike or bus lanes — for the next 66 years. If that wasn't enough, parking meter rates more than doubled in the contract's first five years.

A private group operating a parkway in Denver once stopped the city from making improvements to a nearby public road, citing contract language that prevented improvements that “might hurt the parkway financially” by providing an alternative route for travelers.

In Virginia, a long-term contract with an Australian corporation penalizes the public for increased carpooling on the Capital Beltway's high-occupancy express toll lanes.

Recently, public-private partnerships increasingly have been structured with large contractually obligated payments that last for decades. Such “availability payments” can squeeze other areas of public budgets, such as education or emergency services, without the traditional flexibility of public debt.

Ultimately, the larger and more difficult question is not how we borrow the money to rebuild our infrastructure but how we pay back what we borrow. There's no free lunch. Whether we use direct federal spending, cheap municipal bonds or expensive private financing, the burden falls on all of us. Privatization is not only the most expensive way forward, but it also distorts the role of government by giving private investors control over our shared public assets.

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Chronology

 
1944–1976Modern privatization movement begins.
1944Conservative economist Friedrich von Hayek argues in The Road to Serfdom that big government is tyrannical.
1962Conservative economist Milton Friedman says privatizing government services introduces beneficial competition.
1971A study of New York's sanitation department convinces deputy city administrator E. S. Savas that privatizing the service would improve it. He goes on to become a leading privatization advocate.
1976The Reason Foundation, a libertarian think tank, begins advocating for privatization.
1980s-1992President Ronald Reagan vows to shrink the federal government; privatization grows at the state and local levels.
1980Frustration with inefficient and costly government services helps lead to Reagan's election.
1983Corrections Corporation of America, the country's first private prison company, is founded.
1987Reagan's budget includes more privatization proposals than recommended by any previous president. Congress blocks most of the plans.
1992City Academy in St. Paul, Minn., becomes the nation's first charter school; charter schools, which can be privately owned, receive public funds.
1990s-2008Privatization is embraced by both political parties with the election of Democratic President Bill Clinton.
1993Newly elected President Clinton promises to eliminate 100,000 federal jobs…. Government privatizes the U.S. Enrichment Corp., which contracts with the Department of Energy to produce enriched uranium for power plants.
1995A task force chaired by Vice President Al Gore recommends more privatization of federal services.
1998Clinton administration completes $3.6 billion sale of the Elk Hills Naval Petroleum Reserve to a private company.
2000The number of charter schools reaches nearly 2,000.
2001Following the 9/11 attacks, U.S. government creates Transportation Security Administration (TSA) to do airport screenings once done by private contractors.
2008A Congressional Research Service study finds that private contractors make up 67 percent of U.S. military forces in Afghanistan.
2010-PresentPresident Barack Obama reduces private contracting at the federal level; President Trump seeks to reverse that policy.
2010More than 128,000 men and women are held in private prisons at the state and federal level.
2011Republican congressional leaders unveil a plan to privatize part of Amtrak. The plan fails to get through Congress.
2012Obama administration promotes “insourcing,” which returns some privately contracted services to federal employees.
2016Obama administration announces plan to phase out private prisons after an audit finds they have more safety and security problems than government-run facilities (August)…. President-elect Donald Trump promises a massive infrastructure-building project that administration officials say will largely depend on private investors (November).
2017Trump administration rescinds Obama administration decision on private prisons, saying the U.S. Bureau of Prisons needs greater flexibility (February)…. Trump says he does not believe partnerships where private companies invest in and manage transportation infrastructure work, casting doubt on his administration's plans (September).
  

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Short Features

Critics warn contractors’ behavior “has really poisoned the well.”

Early this year as President Trump weighed his options for the Afghan conflict, two of his top advisers, Steve Bannon and Trump's son-in-law Jared Kushner, met with two businessmen who had a proposal for what to do next: privatize the war.1

The businessmen — Erik Prince, founder of Blackwater Worldwide, a security contracting firm that had been heavily involved in Iraq, and Stephen Feinberg, who owns DynCorp International, a major military contractor — proposed contracting the war out to a 5,500-person private force. This force, made up mostly of former Special Operations troops, would work closely with the Afghan military but report to an appointed American “viceroy” who would answer only to the U.S. president. Their proposal included setting up a 90-plane private air force to assist in the fight against the Taliban, the extremist movement trying to topple the Afghan government.2

The idea seems to have little support in government, but it is not out of line with recent practice. During the United States’ 16-year involvement in Afghanistan and 14 years in Iraq, the U.S. military has increasingly relied on private contractors to help fulfill its mission.

A U.S. security contractor working with the Army's 10th Mountain Division patrols in Ghazni (AFP/Getty Images/Dibyangshu Sarkar)  
A U.S. security contractor working with the Army's 10th Mountain Division patrols in Ghazni, Afghanistan, on May 19, 2013. (AFP/Getty Images/Dibyangshu Sarkar)

At the end of last year, the U.S. military employed 25,197 contract personnel in Afghanistan, compared with 9,800 uniformed U.S. military personnel there. While the contractors included people working in a wide variety of support positions, more than 3,000 were security personnel.3

In March 2011, when the U.S. military had a large presence in Iraq and Afghanistan battling Islamist insurgents, the Defense Department had 155,000 contract personnel in the two countries, compared with 145,000 uniformed service members.4

Prince's proposal, nevertheless, attracted considerable criticism from U.S. military analysts and was reportedly unpopular with Trump's military advisers, including Defense Secretary James Mattis and National Security Adviser H.R. McMaster. They are said to fear that a private force would be more expensive than Prince predicted and would be resisted by regional allies.5

Molly Dunigan, associate director of the defense and political sciences department at the RAND Corp., a research institute in Santa Monica, Calif., says the United States has relied on private contractors to support its military since the American Revolution. But the use of armed security contractors who can end up in firefights and other deadly situations is new, she says.

Military officials say they must rely more heavily on contractors because Congress and the executive branch have capped the number of uniformed personnel, leaving the military shorthanded in Iraq and Afghanistan.6 Dunigan and others, however, say the expanded use of private security personnel can cause problems because of training and command-and-control issues.

“There are issues in terms of contractors operating in a counterinsurgency environment and how they interact with locals,” Dunigan says. “They're typically perceived as part of the American force, but they don't necessarily abide by the same doctrines or the same norms of behavior.”

Private contractors’ behavior was at the center of a highly controversial incident during the Iraq War when Blackwater personnel opened fire on civilians in Nisour Square in Baghdad, killing 17 people. Iraqis were enraged, and the government demanded that Blackwater leave the country.7 The four guards involved in the shooting later were found guilty of murder, manslaughter and weapons charges in U.S. courts, although part of the sentences were later overturned.8 (Private security contractors have been connected to several other incidents that outraged the populace in Iraq and Afghanistan, including the shooting of civilians under questionable circumstances and cases of torture and sexual abuse.)9

Prince sold Blackwater in 2010 and is not directly involved in security contracting. But in a Wall Street Journal opinion piece and several interviews, he has said a private force would be more effective than a traditional military force in Afghanistan.10 He compared the idea to the East India Company, a private trading firm that at times maintained its own army and helped Britain manage its empire during the 17th, 18th and 19th centuries.

“We've fought for the last 15 years with the First Infantry Division model, now we should fight with an East India Company model and do it much cheaper,” Prince told Fox News.11

Although Trump has expressed doubts about the U.S. approach to the war, he decided to follow the recommendation of his military advisers and announced in August he would send more U.S. troops to Afghanistan. According to administration officials, about 4,000 additional troops were to join the 8,500 U.S. military personnel already in the country.12

Prince, however, says he thinks Trump eventually will turn to a private force. “Whether it's six months or a year, I don't think the president wants to go into the [2018 congressional elections] with thousands of American soldiers at risk,” he said.13

But David Sedney, a former deputy U.S. ambassador to Afghanistan, said Afghans would “never accept” privatization of the U.S. military forces there because past experience with private security personnel created “political toxicity.” Afghans have said private security personnel in Afghanistan have acted as if they were above the law.14

“Bad behavior on the part of private security companies has really poisoned the well,” he said.15

— Reed Karaim

[1] Mark Landler, Eric Schmitt and Michael Gordon, “Trump Aides Recruited Businessmen to Devise Options for Afghanistan,” The New York Times, July 10, 2017, https://tinyurl.com/y8ft5rc7.

[2] Jim Michaels, “Trump White House weighs unprecedented plan to privatize much of the war in Afghanistan,” USA Today, Aug. 8, 2017, https://tinyurl.com/y8olr96x.

[3] Heidi Peters, Moshe Schwartz and Lawrence Kapp, “Department of Defense Contractor and Troop Levels in Iraq and Afghanistan: 2007–2017,” Congressional Research Service, April 28, 2017, https://tinyurl.com/lch975o.

[4] Moshe Schwartz and Joyprada Swain, “Department of Defense Contractors in Afghanistan and Iraq: Background and Analysis,” Congressional Research Service, May 13, 2011, https://tinyurl.com/yab8sxpl.

[5] Rosie Gray, “Erik Prince's Plan to Privatize the War in Afghanistan,” The Atlantic, Aug. 18, 2017, https://tinyurl.com/y83vdlzh.

[6] Peters, Schwartz and Kapp, op. cit.

[7] Amit R. Paley, “Iraq Demands Expulsion of Contractor Blackwater, Compensation for Killings,” The Washington Post, Oct. 15, 2007, https://tinyurl.com/yb7ku9us.

[8] Matt Apuzo, “In Blackwater Case, Court Rejects a Murder Conviction and Voids 3 Sentences,” The New York Times, Aug. 4, 2017, https://tinyurl.com/y7pgz9e6.

[9] Moshe Schwartz, “The Department of Defense's Use of Private Security Contractors in Iraq and Afghanistan: Background, Analysis, and Options for Congress,” Congressional Research Service, Sept. 29, 2009, https://tinyurl.com/ybez6mu2; James Glanz and Andrew Lehren, “Use of Contractors Added to War's Chaos in Iraq,” The New York Times, Oct. 23, 2010, https://tinyurl.com/ybr7szeu.

[10] Erik D. Prince, “The MacArthur Model for Afghanistan,” The Wall Street Journal, May 31, 2017, https://tinyurl.com/yav8j77d.

[11] “Blackwater Founder: Ironically ‘The Left Loved The USSR’ 30 Years Ago,” Fox News Insider, May 17, 2017, https://tinyurl.com/mu2qjza.

[12] David Nakamura and Abby Phillip, “Trump announces new strategy for Afghanistan that calls for a troop increase,” The Washington Post, Aug. 21, 2017, https://tinyurl.com/y9bdrj8g.

[13] Steven Nelson, “Erik Prince believes Trump will eventually privatize Afghanistan War,” Washington Examiner, Nov. 6, 2017, https://tinyurl.com/y77ldkgj.

[14] Paul Tait, “Afghanistan orders ban on private security firms,” Reuters, Aug. 17, 2017, https://tinyurl.com/y778jhol.

[15] Nelson, op. cit.

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Backers see cost savings and better security, but foes fear a lack of accountability.

Airport security screening has a unique history that illustrates the constant back-and-forth pull between public and private operations of government services.

Before the Sept. 11, 2001, terrorist attacks, private contractors conducted passenger screening at airports. Then, 19 hijackers boarded four commercial airliners carrying box cutters, which they used to take control of the planes and crash them into the World Trade Center in New York City and the Pentagon near Washington, D.C. A fourth plane crashed in rural Pennsylvania. In all, nearly 3,000 people were killed.

Within weeks, Congress voted to create the Transportation Security Administration (TSA), which today has more than 44,000 federal security officers who continue to provide airport screening.16

But discontent with the federalized service, particularly the long lines at some airports that critics blame on the TSA, has led to repeated calls to return the responsibility to private contractors. The push to reprivatize airport security comes from conservative think tanks, such as the Heritage Foundation, along with some senior Republican lawmakers, including Rep. Michael McCaul, R-Texas, head of the House Committee on Homeland Security, and Rep. Darrell Issa, R-Calif.17

Privatization foes, however, say private airport security did not work well before 2001 and would not work well again because, the opponents contend, these contractors focus on the bottom line over security.

Although no one has introduced legislation, Issa reflected the view of privatization supporters earlier this year when he described the airport security system as “broken.” If the United States wants to speed up and improve screening, Issa said, “the solution couldn't be any simpler: Let's get the TSA out of the airport screening business altogether.” Citing various studies, he said private screeners at 22 airports outperformed their public counterparts in terms of efficiency and safety because of better morale and higher employee retention rates.18

New automated security-screening lanes funded by American Airlines and installed (Getty Images/Joe Raedle)  
New automated security-screening lanes funded by American Airlines and installed by the Transportation Security Administration check travelers at Miami International Airport on Oct. 24, 2017. (Getty Images/Joe Raedle)

“Ultimately, allowing private companies to take over administration of our airports’ security, under the TSA's guidelines, would unleash the markets’ power of innovation to improve customer service and undo years of bureaucracy that has squandered billions of dollars dedicated to airport security and done much to make traveling more miserable,” Issa said.

But other analysts say the history of airport security illustrates the dangers of privatizing a service essential to public safety. In a 2007 book, legal scholar Paul R. Verkuil argued the pre-9/11 approach had a fundamental flaw: Security was the responsibility of the airlines, which contracted the work out to private companies.

“Not surprisingly, these contracts went to the lowest bidders,” wrote Verkuil. “As a result, these private security firm employees were poorly trained, lacking language skills and otherwise unqualified (they were sometimes convicted felons).”19

Through the contracting process, Verkuil said, “airlines treated the security functions as a cost control item and forced the quality of services downward. In these circumstances, it should have been no surprise that the airport security system failed in its essential purpose.”20

The TSA's creation was an acknowledgment that for certain government responsibilities, cost and profit calculations cannot be the primary concerns, he said. “The reasons that Congress took this action reflect concerns with public values and inherent government functions, essential considerations that are often left out of the debate over privatization.”

The United States took additional steps to improve security aboard airliners, such as deploying federal marshals on planes, and no U.S. airliner has been hijacked since 9/11. But privatization's advocates say the current system is bloated, expensive and not customer friendly. In Europe, they say, privatized systems do a better job with fewer resources.21

In addition, said Issa, studies show that airport screeners still miss a high percentage of dangerous objects. He added there is no evidence that federalizing airport security has improved security.22 Contracting out screening would “would go a long way to helping improve the experience fliers face at our nation's airports,” he said.23

But Aman Banerji, a program manager who works on privatization issues at the Roosevelt Institute, a liberal think tank in New York, says that while the TSA is badly run, “We're papering over the cracks by pretending that the problems will be fixed by private contractors. I think it's a good example of the way we use bad management as an argument for privatization. In reality, when you look at the way privatization plays out, you just shift from a public monopoly to a private monopoly [for a service]. There's no way that makes government more accountable.”

— Reed Karaim

[16] “House, Senate pass aviation security bill,” CNN, Nov. 16, 2001, https://tinyurl.com/y8mywd4n; “TSA at a Glance,” Transportation Security Administration, https://tinyurl.com/yclwnnqu.

[17] David Inserra, “Time to Privatize the TSA,” Heritage Foundation, July 19, 2017, https://tinyurl.com/y7of7uh3. Keith Laing, “TSA Failures Spark Calls for Privatization,” The Hill, June 9, 2015, https://tinyurl.com/y8pas4fd.

[18] Darrell Issa, “A simple solution to the TSA breakdown,” CNN, May 26, 2016, https://tinyurl.com/hl38s4z.

[19] Paul Verkuil, Outsourcing Sovereignty: Why Privatization of Government Threatens Democracy and What We Can Do About it (2007), p. 58.

[20] Ibid.

[21] Inserra, op. cit.

[22] Thomas Frank, “Most fake bombs missed by screeners,” USA Today, Oct. 22, 2007, https://tinyurl.com/yctzyvtf.

[23] Issa, op. cit.

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Bibliography

Books

Gonzalez, Joaquin III, and Roger Kemp, Privatization in Practice: Reports on Trends, Cases and Debates in Public Service by Business and Nonprofits , 2nd ed., McFarland, 2016. A collection of essays, edited by two public administration professors from Golden State University in San Francisco, explores the pluses and minuses of privatizing government services.

Michaels, Jon , Constitutional Coup: Privatization's Threat to the American Republic, Harvard University Press, 2017. A law professor at the University of California, Los Angeles, argues that privatization threatens America's system of government by usurping power from civil servants and other participants in the democratic process.

Savas, E. S. , Privatization and Public-Private Partnerships , 2nd ed., Chatham House, 1990. A public affairs professor at the City University of New York who is considered a founder of the modern privatization movement outlines his ideas about the practical applications of the theory in this landmark book on the topic.

Verkuil, Paul , Outsourcing Sovereignty: Why Privatization of Government Functions Threatens Democracy and What We Can Do About It , Cambridge University Press, 2007. A legal scholar concludes that privatizing essential functions undermines government officials and democratic practices.

Articles

Alexander, Brian , “Privatization Is Changing America's Relationship With Its Physical Stuff,” The Atlantic, July 12, 2017, https://tinyurl.com/y7s8w8pr. Privatization is turning citizens into customers, the author argues.

Bauer, Shane , “My four months as a private prison guard,” Mother Jones, July/August 2016, https://tinyurl.com/yd7sc6fm. An award-winning undercover investigation at a private prison in Louisiana finds violent conditions and an overworked staff.

Ivory, Danielle, Ben Protess and Griff Palmer , “In American Towns, Private Profits from Public Works,” The New York Times, Dec. 24, 2016, https://tinyurl.com/ycmmx753. An analysis of public works projects financed by Wall Street firms found that taxpayers often end up paying a much higher cost for utility bills because of contracts that guarantee certain returns for financial firms.

Manson, Katrina , “Erik Prince offers private military force in Afghanistan,” Financial Times, Aug. 7, 2017, https://tinyurl.com/y9bqpv6j. The founder of Blackwater, which provided private security forces for the U.S. government in Iraq before being shut down for abusive use of force, proposes creating a new private military force for Afghanistan.

O'Neal, Lydia, and David Sirota , “Trump's Infrastructure Plan is Actually Pence's — And It's All About Privatization,” Newsweek, Sept. 4, 2017, https://tinyurl.com/y8wns48x. President Trump's plan to use private financing for infrastructure spending are traced to Indiana's approach to building a private toll road, which eventually went bankrupt.

Porter, Eduardo , “When Public Outperforms Private in Services,” The New York Times, Jan. 15, 2013, https://tinyurl.com/ybfozocv. A review of privatized government enterprises here and abroad finds that such projects are successful when the privatized enterprises are given clear-cut goals and are rewarded for reaching those goals.

Reports and Studies

“Building America While Building the Middle Class: Best Practices for P3 Infrastructure Projects,” In the Public Interest and Partnership for Working Families, March 9, 2016, https://tinyurl.com/y8ehnc9k. A liberal think tank and a public interest advocacy group outline safeguards to ensure that taxpayers and workers benefit from public-private infrastructure projects.

Chassy, Paul, and Scott Amey , “Bad Business: Billions of Taxpayer Dollars Wasted on Hiring Contractors,” Project on Government Oversight, Sept. 12, 2011, https://tinyurl.com/6lrp8ja. Outsourcing government jobs to private contractors can end up costing more than having the government perform the same job in-house, according to a study by an organization dedicated to eliminating government waste.

Edwards, Chris , “Options for Federal Privatization and Reform Lessons from Abroad,” Cato Institute, June 28, 2016, https://tinyurl.com/ya7g89nu. A libertarian think tank outlines reasons for privatizing much of the federal government's operations and assets, including air traffic control, Amtrak and the U.S. Postal Service.

Stuart, Austill, and Leonard Gilroy, eds., “Annual Privatization Report 2017,” Reason Foundation, https://tinyurl.com/y98ep6jm. A libertarian think tank releases a yearly report tracking privatization trends in local, state and federal government in a variety of areas, including prisons and air and surface transportation.

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The Next Step

Air Traffic Control

Davis, Julie Hirschfeld , “Trump Backs Air Traffic Control Privatization,” The New York Times, June 5, 2017, https://tinyurl.com/ya9xglng. President Trump endorsed a proposal to privatize air traffic control, but the move had no binding effect.

Jansen, Bart , “Senate panel rejects air-traffic control privatization,” USA Today, July 25, 2017, https://tinyurl.com/y85nhl7e. A Senate Appropriations subcommittee rejected President Trump's proposal to move air traffic controllers from the Federal Aviation Administration to a nonprofit corporation.

Sullenberger, Sully , “Miracle on Hudson pilot: Don't privatize air traffic control,” USA Today, Oct. 18, 2017, https://tinyurl.com/yckvrlcc. The retired airline pilot, famous for safely landing a disabled passenger jet in the Hudson River in 2009, argues in an op-ed that privatizing air-traffic control would threaten passenger safety.

Infrastructure Projects

Goldstein, Matthew, and Patricia Cohen , “Public-Private Projects Where the Public Pays and Pays,” The New York Times, June 6, 2017, https://tinyurl.com/ycktaevb. Supporters of public-private partnerships say infrastructure projects are completed faster and less expensively when the private sector is involved, but experts say there is little evidence such partnerships benefit taxpayers in the long term.

McWhirter, Cameron , “Indiana Highway Gives ‘Black Eye’ to Private Investment in Infrastructure,” The Wall Street Journal, Aug. 9, 2017, https://tinyurl.com/y9urc84d. A public-private Indiana highway project that is two years behind schedule and only 60 percent finished reflects the pitfalls of privatizing infrastructure projects.

Siegel, Josh , “Puerto Rico's oversight board considering privatization of ‘failing’ power utility,” Washington Examiner, Nov. 7, 2017, https://tinyurl.com/y8mo84zj. Puerto Rico's oversight board and Gov. Ricardo Rossello are divided on whether privatizing the bankrupt, state-run Puerto Rico Electric Power Authority is the best way to restore full power to the island.

Military Contractors

Carter, Philip , “No More Private Wars,” Slate, Aug. 8, 2017, https://tinyurl.com/yaaqgjom. A senior fellow at the Center for a New American Security, a national security think tank, says there is little evidence private contractors perform better than U.S. troops in combat.

Prince, Erik , “Erik Prince: Contractors, Not Troops, Will Save Afghanistan,” The New York Times, Aug. 30, 2017, https://tinyurl.com/ybaswwty. The founder of the security company formerly known as Blackwater USA says the best strategy for ending the war in Afghanistan is to withdraw most U.S. troops and use private contractors and U.S. Special Operations personnel to support the Afghan Army.

Zaleski, Andrew , “Lockheed Martin invests millions in defense start-ups to fast-track R&D,” CNBC, Nov. 2, 2017, https://tinyurl.com/y7a6bnjr. Defense contractors, including Lockheed Martin Ventures, have invested millions of dollars in startups working on innovations — in artificial intelligence, cybersecurity, space and other areas — that could be used for military purposes.

Protests

Yen, Hope , “After vets protests, new deal struck to end VA budget crisis,” The Associated Press, PBS, July 28, 2017, https://tinyurl.com/ydcl4x7e. Congressional lawmakers reached agreement in July on emergency money for the Veterans Affairs Department after veterans’ groups protested that the House's original proposal tilted too far toward private-sector care.

Young, Anna , “Opponents Protest Potential County Airport Privatization Plan,” The Examiner, July 19, 2017, https://tinyurl.com/y995b7bj. More than 100 opponents of a plan to privatize the public airport in Westchester County, N.Y., said at a protest in July that the proposal would threaten air and water quality.

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Contacts

American Federation of Government Employees
80 F St., N.W., Washington, DC 20001
202-737-8700
www.afge.org
Largest federal employee union, with more than 700,000 members; opposes outsourcing and the privatization of federal agencies.

American Society of Civil Engineers
1801 Alexander Bell Drive, Reston, VA 20191
800-548-2723
www.asce.org
Publishes the annual “Report Card for America's Infrastructure,” assessing the state of the nation's roads, bridges, water systems, power grid and other key infrastructure; also estimates the cost of unmet maintenance and needed upgrades.

Center for American Progress
1333 H St., N.W., Washington, DC 20005
202-682-1611
https://www.americanprogress.org
An independent liberal-leaning policy institute engaged in national economic and policy debates.

Center on Budget and Policy Priorities
820 First St., N.E., Suite 510, Washington, DC 20002
202-408-1080
www.cbpp.org
Think tank that promotes federal and state policies designed to reduce poverty and economic inequality and studies privatization efforts.

Eno Center for Transportation
1710 Rhode Island Ave., N.W., Suite 500, Washington, DC 20036
202-879-4700
www.enotrans.org
Think tank that monitors public policy affecting the nation's transportation system and tracks transportation-related public-private partnerships.

Heritage Foundation
214 Massachusetts Ave., N.E., Washington, DC 20002-4999
202-546-4400
www.heritage.org
A prominent public policy think tank that promotes conservative ideas.

In the Public Interest
1939 Harrison St., Suite 150, Oakland, CA 94612
202-429-5091
www.inthepublicinterest.org
Think tank focused on privatization and government contracting; publishes “Weekly Privatization Report” on activities at all levels of government.

Reason Foundation
1747 Connecticut Ave., N.W., Washington, DC 20009
202-986-0916
http://reason.org
Libertarian think tank that promotes privatization. Publishes annual report tracking privatization trends in local, state and federal government.

Roosevelt Institute
570 Lexington Ave., 18th Floor New York, NY 10022
212-444-9130
http://rooseveltinstitute.org
A liberal think tank dedicated to carrying on the legacy and ideals of Franklin and Eleanor Roosevelt.

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Footnotes

[1] Michael Laris, “Trump advisers call for privatizing some public assets to build new infrastructure,” The Washington Post, May 23, 2017, https://tinyurl.com/yawackc7.

[2] Tony Newmyer and Damian Paletta, “Trump backs off vow that private sector should help pay for infrastructure package,” The Washington Post, Sept. 26, 2017, https://tinyurl.com/y9tjp3nr.

[3] E. S. Savas, Privatization and Public-Private Partnerships (2000), p. XIV.

[4] Paul Verkuil, Outsourcing Sovereignty: Why Privatization of Government Threatens Democracy and What We Can Do About it (2007), p. 1.

[5] Erika Eichelberger, “Who Really Runs Your City?” Talking Points Memo, 2016, https://tinyurl.com/z87cgyt.

[6] Sean McFate, “America's Addiction to Mercenaries,” The Atlantic, Aug. 12, 2016, https://tinyurl.com/y9zzfn9b. “Private Debt Collection,” The Internal Revenue Service, Aug. 7, 2017, https://tinyurl.com/j6t3td8.

[7] David Hoffman, “Report of Inspector General's Finding and Recommendations: An Analysis of the Lease of the City's Parking Meters,” Office of the Inspector General, City of Chicago, June 2, 2009, https://tinyurl.com/y9npx8v7.

[8] Michael Martz and Robert Zullo, “Virginia awards contract for I-66 under new approach that saves state $2.5 billion,” The Richmond Times Dispatch, Nov. 3, 2016, https://tinyurl.com/yaqzv6cw.

[9] Molly Ball, “The Privatization Backlash,” The Atlantic, April 23, 2014, https://tinyurl.com/ybnvjzdk. Also see “Pay to Prey, Governors Facilitate the Predatory Outsourcing of America's Public Services,” Center for Media and Democracy, 2014, https://tinyurl.com/ydbn9lm4.

[10] Eichelberger, op. cit.

[11] For background, see Richard L. Worsnop, “Privatization,” CQ Researcher, Nov. 13, 1992, pp. 977–1000.

[12] Steven Pearlstein, “The federal outsourcing boom and why it's failing Americans,” The Washington Post, Jan. 31, 2014, https://tinyurl.com/y8oy6e3f.

[13] John DiIulio Jr. and Paul Verkuil, “Want a leaner government? Hire more federal workers,” The Washington Post, April 21, 2016, https://tinyurl.com/y82quacf.

[14] Leonard Gilroy, “Local Government Privatization 101,” The Reason Foundation, March 16, 2010, https://tinyurl.com/36modc8.

[15] “Bad Business: Billions of Taxpayer Dollars Wasted on Hiring Contractors,” Project on Government Oversight, 2012, https://tinyurl.com/6lrp8ja.

[16] “Race to the Bottom: How Outsourcing Public Services Rewards Corporations and Punishes the Middle Class,” In the Public Interest, June 2014, https://tinyurl.com/hq9mpcw.

[17] Newmyer and Paletta, op. cit.

[18] “Using Public-Private Partnerships to Carry Out Highway Projects,” Congressional Budget Office, January 2012, https://tinyurl.com/y7z3fhte.

[19] Ibid.

[20] Lydia O'Neal and David Sirota, “Trump's Infrastructure Plan is Actually Pence's — And It's All About Privatization,” Newsweek, Sept. 4, 2017, https://tinyurl.com/y8wns48x.

[21] For background, see Reed Karaim, “Charter Schools,” CQ Researcher, March 10, 2017, pp. 217–240.

[22] Donald Cohen, “The Fastest Road in America Is Falling Apart. Here's Why,” HuffPost, Sept. 23, 2017, https://tinyurl.com/yawxebw4.

[23] Danielle Ivory, Ben Protess and Griff Palmer, “In American Towns, Private Profits from Public Works,” The New York Times, Dec. 24, 2016, https://tinyurl.com/ybaynpdk.

[24] “Selling Out Consumers: How Water Prices Increased After 10 of the Largest Water System Sales,” In the Public Interest, June 2011, https://tinyurl.com/yba8q6es.

[25] Ivory, Protess and Palmer, op. cit.

[26] Yvette Hammett, “Tampa's toll-lanes plan intrusive, elitist, obsolete, protestors say,” Tampa Bay Times, Feb. 6, 2016, https://tinyurl.com/ycval58g.

[27] David Hedgpeth, “$34.50 for 10 Miles? New Tolls on I-66 Kick Off With Some High Rates,” The Washington Post, Dec. 4, 2017, https://tinyurl.com/yd4lmqxh; Dana Hedgpeth and Luz Lazo, “I-66 toll hits $40 on day 2. Virginia transportation chief: ‘No one has to pay a toll,’” The Washington Post, Dec. 5, 2017, https://tinyurl.com/y9c6jrbj.

[28] “History of education in the United States,” K12ademics.com, 2017, https://tinyurl.com/y7fkmzh4.

[29] Daniel Klein and John Majewski, “Turnpikes and Toll Roads in Nineteenth-Century America,” EH.net, https://tinyurl.com/yafw87fg.

[30] Ibid.

[31] Ibid.

[32] Henry Petroski, The Road Taken: The History and Future of America's Infrastructure (2016), p. 117.

[33] For background, see C. Hankin, “The Supreme Court and the New Deal,” Editorial Research Reports, 1935 (Vol. I), and B. W. Patch, “New Deal Aims and the Constitution,” Editorial Research Reports, 1936 (Vol. 2); both available at https://tinyurl.com/7hve5.

[34] Petroski, op. cit., pp. 41–49.

[35] Ibid., p. 48.

[36] Donald Cohen, “The History of Privatization,” Talking Points Memo, 2016, https://tinyurl.com/j9gv8lr.

[37] Ibid.

[38] Richard Seymour, “A short history of privatisation in the UK: 1979–2012,” The Guardian, March 29, 2012, https://tinyurl.com/jmn9j2t.

[39] Robert Poole, “Ronald Reagan and the Privatization Revolution,” Reason Foundation, June 8, 2004, https://tinyurl.com/y9whbrat.

[40] James Sterngold, “85% U.S. Stake in Conrail Sold for $1.6 Billion,” The New York Times, March 27, 1987, https://tinyurl.com/y89eou3f.

[41] Cohen, “The History of Privatization,” op. cit.

[42] Poole, op. cit.

[43] Ibid.

[44] Moshe Schwartz and Joyprada Swain, “Department of Defense Contractors in Afghanistan and Iraq: Background and Analysis,” Congressional Research Service, May 13, 2011, https://tinyurl.com/yab8sxpl.

[45] “More Dollars Less Sense: Worsening Contracting Trends Under the Bush Administration,” U.S. House of Representatives, Committee on Oversight and Government Reform, Majority Staff, June 2007, p. i.

[46] Ibid.

[47] For background, see Martin Kady II, “Homeland Security,” CQ Researcher, Sept. 12, 2003, pp. 749–772; “TSA at a Glance,” Transportation Security Administration, https://tinyurl.com/yclwnnqu.

[48] Cohen, “The History of Privatization,” op. cit.

[49] Abigail Geiger, “U.S. private prison population has declined in recent years,” Pew Research Center, April 11, 2017, https://tinyurl.com/y8myljlb.

[50] “Banking on Bondage: Private Prisons and Mass Incarceration,” American Civil Liberties Union, November 2011, https://tinyurl.com/pj8qdo6; “Emerging Issues on Privatized Prisons,” Department of Justice, February 2001, https://tinyurl.com/bqlg9gt; Brendan Fischer, “Violence, Abuse and Death at For-Profit Prisons: A GEO Group Rap Sheet,” PRWatch, Center for Media and Democracy, Sept. 26, 2013, https://tinyurl.com/y7uxr6xy.

[51] Megan Mumford, Diane Whitmore Schanzenbach and Ryan Nunn, “The economics of private prisons,” Brookings Institution, Oct. 20, 2016, https://tinyurl.com/yahrjf87.

[52] Simon Hakim and Erwin Blackstone, “Prison Break: A New Approach to Public Cost and Safety,” The Independent Institute, June 2014, https://tinyurl.com/yaojdbus.

[53] Eileen Sullivan, “Obama administration to end use of private prisons,” PBS News Hour, Aug. 18, 2016, https://tinyurl.com/y8h4rwlq.

[54] Matthew Weigelt, “Obama official hits campaign trail to sell insourcing,” Washington Technology, Jan. 12, 2010, https://tinyurl.com/y85pvelv; Greg Jaffe, “Gates: Cuts in Pentagon bureaucracy needed to help maintain military force,” The Washington Post, May 2010, https://tinyurl.com/35x5vco.

[55] Ball, op. cit.

[56] Ibid.

[57] Ibid.

[58] Patrick Gillespie, “Trump's $1 trillion infrastructure promise has an obstacle: His own budget cut,” CNN, June 9, 2017, https://tinyurl.com/y8fn3c55.

[59] Laris, op. cit.; O'Neal and Sirota, op. cit.

[60] Howard Fischer, “Arizona makes pitch for permission to privatize public rest stops,” Tucson. com, Nov. 3, 2017, https://tinyurl.com/ydyga44n.

[61] Jodi Richards, “Los Angeles International uses private-public partnerships to build automated people mover and consolidated rental car facility,” Airport Improvement, May-June 2017, https://tinyurl.com/ycods4ca.

[62] Todd Ziebarth, “State Legislative Session Highlights for Public Charter Schools,” National Alliance for Public Charter Schools, October 2017, https://tinyurl.com/ydze3o3s.

[63] Bruce Baker and Gary Miron, “The Business of Charter Schooling: Understanding the Policies that Charter Operators Use for Financial Benefit,” National Education Policy Center, Colorado University, December 2015, https://tinyurl.com/jnludyq.

[64] Karaim, op. cit.

[65] “2016 Annual Report,” National Alliance for Public Charter Schools, May 2017, https://tinyurl.com/y9epu7jv.

[66] Karaim, op. cit., p. 221.

[67] “U.S. Department of Education Awards $253 Million in Grants to Expand Charter Schools,” U.S. Department of Education, Sept. 28, 2017, https://tinyurl.com/yaevhqmf.

[68] “Awards,” Office of Innovation and Improvement, U.S. Department of Education, Sept. 28, 2917, https://tinyurl.com/y8dlf7sb. Ben Felder, “Feds send $16.5M to Oklahoma for charter schools,” NewsOK, Sept. 29, 2017, https://tinyurl.com/yd7pldea.

[69] Joe Malinconico, “Charter school applications in Paterson rejected by New Jersey,” NorthJersey.com, Nov. 9, 2017, https://tinyurl.com/ycgwg68d.

[70] James Mulder, “NY rejects state's first ‘agri-based’ rural charter school in Cortland,” Syracuse.com, Nov. 14, 2017, https://tinyurl.com/ycalr4l8.

[71] Karaim, op. cit., p. 231.

[72] Howard Blume and Shelby Grad, “Major changes could come to L.A. schools after charter school movement's big win,” Los Angeles Times, May 17, 2017, https://tinyurl.com/mja8ljs.

[73] Howard Blume, “Agreement paves way for L.A. Unified to approve most old and new charter schools,” Los Angeles Times, Nov. 7, 2017, https://tinyurl.com/y7mbgkvs.

[74] Karaim, op. cit., p. 220.

[75] Valerie Strauss, “Why the movement to privatize public education is a very bad idea,” The Washington Post, July 14, 2016, https://tinyurl.com/ybtf6nd6.

[76] Ibid.

[77] Geert de Lombaerde, “CoreCivic buys halfway houses in three states,” Nashville Post, Nov. 9, 2017, https://tinyurl.com/yalrpjp8.

[78] Christopher Ingram, “Private prison stocks collapse after Justice Department promises to phase them out,” The Washington Post, Aug. 18, 2016.

[79] Heather Long, “Private prison stocks up 100% since Trump win,” CNN Money, Feb. 24, 2017, https://tinyurl.com/y9eg7nrf.

[80] Joe Watson, “Report Finds Two-Thirds of Private Prison Contracts Include ‘Lockup Quotas,’” Prison Legal News, July 31, 2015, https://tinyurl.com/z7szbbm.

[81] “How Private Prison Companies Increase Recidivism,” In the Public Interest, June 2016, https://tinyurl.com/za7og9j.

[82] Julie Hirschfield Davis, “Trump Backs Air Traffic Control Privatization,” The New York Times, June 5, 2017, https://tinyurl.com/ya9xglng.

[83] Ibid.

[84] Sully Sullenberger, “Miracle on Hudson pilot: Don't privatize air traffic control,” USA Today, Oct. 18, 2017, https://tinyurl.com/yckvrlcc.

[85] Jacob Fischler, “Holding Pattern, A chairman's plan for air traffic control is still circling the House, unable to land,” CQ Weekly, Nov. 13, 2017.

[86] Bart Jansen, “Senate panel rejects air-traffic control privatization,” USA Today, July 25, 2017, https://tinyurl.com/y85nhl7e.

[87] David Savage, “Supreme Court poised to deal a sharp blow to unions for teachers and public employees,” Los Angeles Times, Sept. 28, 2017, https://tinyurl.com/ydapgumr.

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About the Author

Reed Karaim, author of this week's edition of CQ Researcher  

Reed Karaim, a freelance writer in Tucson, Ariz., has written for The Washington Post, U.S. News & World Report, Smithsonian, American Scholar, USA Weekend and other publications. He is the author of the novel If Men Were Angels, which was selected for the Barnes & Noble Discover Great New Writers series. He is also the winner of the Robin Goldstein Award for Outstanding Regional Reporting and other journalism honors. Karaim is a graduate of North Dakota State University in Fargo.

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Document APA Citation
Karaim, R. (2017, December 8). Privatizing government services. CQ researcher, 27, 1017-1040. Retrieved from http://library.cqpress.com/
Document ID: cqresrre2017120800
Document URL: http://library.cqpress.com/cqresearcher/cqresrre2017120800
ISSUE TRACKER for Related Reports
Privatization
Dec. 08, 2017  Privatizing Government Services
Aug. 09, 1996  Privatizing Government Services
Nov. 13, 1992  Privatization
Oct. 07, 1988  Privatization: Third World Moves Slowly
Jul. 26, 1985  Privatizing Public Services
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