
The Hidden Cost of Privatization - frgtpsswrdlame
https://www.ineteconomics.org/perspectives/blog/the-business-of-government
======
subverter
The problem in Keynes thinking on "social services" is that it's impossible to
gather all of the knowledge necessary to ascertain what those would be. That
knowledge is dispersed among ~320m citizens (in the U.S.) who each have
particular wants and needs. And even if you could somehow attain that
knowledge in one place, the likelihood of finding consensus on how a
particular "social service" should be offered is next to zero. The end result?
Nearly everyone disagrees with some of what government implements, which
breeds resentment and causes gridlock much like we're seeing today in the U.S.

It doesn't have to be that way. By decentralizing decision making down to a
level closer to the individual (if not the individual), more people get what
they want. For example, right now there's a federal mandate for health
insurance. Not everyone agrees with this mandate, so why not _at least_ push
it down a level to the states? California can still have a mandate for health
insurance, and Alabama can decide not to. And then, why not push it to the
city/county level? If you don't agree with San Francisco's mandate for health
insurance, simply move to Oakland. You don't even have to move states, let
alone countries.

Why do so many oppose such a solution where everyone can much more easily find
a place where they agree with the "social services" offered (or not)?

~~~
matchbok
Because if you don't mandate insurance, then the entire system falls apart.
Sick people need it, healthy people don't want to pay for it. You need
everyone to pay to make it affordable.

~~~
r_smart
You're confusing insurance with healthcare. Insurance is supposed to be for
risk mitigation, rare but extremely damaging events. If everyone uses
insurance for everything health related, like we all want to do now, it's
impossible for insurance to be anything other than a premium you pay on top of
your healthcare costs.

Insurance shouldn't be used for routine stuff, and people shouldn't be
required to have it unless they want it.

~~~
maxerickson
_it 's impossible for insurance to be anything other than a premium you pay on
top of your healthcare costs._

And yet each year there are millions of people that receive medical services
in excess of their insurance payments (including premiums, copays, etc).

~~~
antisthenes
Which doesn't invalidate what the parent comment in any way, because we're
talking about the aggregate costs.

So what was your point?

~~~
maxerickson
The premium on top of aggregate cost complaint would also apply to "pure
insurance". Or else no one would bother selling it.

Anyway, I'm pretty sure they were saying that insurance didn't work, which is
manifestly untrue. If they are complaining that it makes healthcare more
expensive, well fine, but that is probably more about the principal agent
problem than the administrative costs and profits of insurers.

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leroy_masochist
Article is a summary of others' thoughts (mostly Keynes) without a clear
thesis.

Would have been nice to read, say, an analysis of why privatizing air traffic
control is a bad idea despite the fact that the tech the gov't uses in that
space is super antiquated, which in terms drives a bunch of inefficiencies and
safety hazards in that particular sector.

~~~
Mindcraft
Evidence that private air traffic control use/would use more modern tech?

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leroy_masochist
I mean, I think it's self-evident as a general point...but in this specific
case they don't have any satellite data driving their weather analysis because
the government bureaucracy is mired in an ongoing process to upgrade. Anyone
who has done gov't software contracting has probably seen cases like this.

~~~
Mindcraft
Why a private company would invest on better technology if it doesn't have
competitors? It's not profitable for a service provider to invest, and even if
there are competitors, most of the time, like with cellphone carriers, they
agree not provide a better service so they can all take their portion of the
cake without expending a dime.

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throw2016
Things like universal health care will become non issues when the country
evolves from being a collective of economic interests with identity rooted
purely in individual wealth and status to a country with a sense of collective
identity that sees no conflict in having everyone's back and building a
healthy educated society.

Individual excellence is as important as common structures and a collective
sense of purpose and direction, no one achieves anything in a vacuum and one
can't simply negate the other.

Collectivism is not about getting everyone down but raising everyone up at
least to a basic acceptable standard and level of opportunities, so that
anyone with the skills and talent can soar and not just those with privileged
upbringing and backgrounds.

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anonymousiam
Rebuttal: [http://www.heritage.org/budget-and-spending/report/the-
impac...](http://www.heritage.org/budget-and-spending/report/the-impact-
government-spending-economic-growth)

~~~
rainbowmverse
There are many defensible arguments against government programs from across
the social and political spectrums, but they don't come from the Heritage
Foundation. They have a severe beyond reason bias against government.

~~~
ooyy
Do you think Institute for New Economic Thinking, a think thank founded by
George Soros, is any less biased?

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sharemywin
While it does cover a lot of interesting points the few things that I think it
misses are research/innovation and unions/long term employment contracts of
government employees. Not that there are easy answer, but those two things can
effect whether a private company could get a job done cheaper.

Also, doesn't talk about software infrastructure. Take Microsoft, Amazon,
Google, Apple, Facebook. Customer acquisition costs for lots of fledgling
businesses are high because of the ad auctions paid for by consumer attention
and net neutrality keeping bandwidth costs down for those companies.

~~~
yequalsx
Getting rid of unions will increase income inequality. Just compare for profit
higher education with public higher education. The wages/benefits for workers
former very much lag those of the latter. Private prisons pay way less too.
But the people at the top get outsized pay. The cost savings to taxpayers are
not sufficient to justify this inequity.

~~~
pizzetta
Imagine if unions were strong and IT were unionized. How would you imagine the
progress we've seen in information technology?

The impact on progress should not be discounted as an externality. Imagine if
taxicabs or any livery service of any kind had to have a union member
associated with it. Would autonomous cars make the same progress (for example,
we can have autonomous subways/trains but they have to be "personned" due to
pressure from unions). Or, imagine if we had them in research (drugs
discovery) --the added bureaucracy researchers would have to manage and devote
valuable time to.

I am not saying unionization is absolutely bad --they have brought good things
about to workplace improvement, but they also have externalities we need to
acknowledge.

~~~
csydas
>Imagine if unions were strong and IT were unionized. How would you imagine
the progress we've seen in information technology?

I'm not sure this is really a compelling point. Tech companies have made some
cool stuff, but technology is also heavily driven by FOSS, which is not really
driven by the same factors business are. Union or no union isn't really a
question with FOSS, as these projects, many of which drive modern technology,
were developed without traditional business incentives. Yes they're are
businesses built around supporting open technology, but techs huge advances
aren't driven only by companies. I think unionization would have less of an
impact on tech advances than is being suggested.

~~~
pizzetta
I could argue that if unions were strong and everyone had to belong to a union
to participate in an economy the unions could see an advantage to controlling
how you contribute to FOSS because your "free" contribution to FOSS impinges
on the rights to another unionized worker's right to work. The FOSS developer
would theoretically be undermining the union worker.

~~~
csydas
Well, you certainly could, but that wasn't the argument presented or responded
to. The argument you put forth was Technology's advancement was due to IT
businesses, and what would the world be like if there were more Unions; but
this is not really a sensible proposition because major technological
advances, indeed the majority of which are driving the backbone of the world
economy and technology as we know it, were developed without any of the
incentives provided by a business structure. Union or not is irrelevant to
such forces because they operate outside the realm of business.

The idea that FOSS would be quashed under a mandatory unionized economy is not
what was being discussed, and I'm not sure of the relevance of such a
theoretical world in the context of what was said. It's tangential at best.

What was being discussed, the advancement of technology as we've seen it, has
happened independent of how employees are organized and employed. As long as
there are inventive persons looking to try something new, there will be
technological advancements.

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stuaxo
The non hidden problem is that profits need to be made.

We are told that from profits everything else will be optimised for the
better, instead everything is optimised to make a profit.

------
EGreg
Look, I actually argue for social safety nets. I believe government's role can
be defined simply as "ensure that the minimum expectations of society are
met", with the full understanding that these expectations (running potable
water, medical advances, etc.) increase over time and vary from place to
place. I am totally fine with decentralizing government functions to the point
of neighborhoods – many of you know that I'm in favor of more decentralization
in general.

However, even someone like me can say this article falls far short of
supporting its audacious title. It's mostly a paean to Keynes and his
concepts. In addition, it contains some fallacies:

 _But, if the government covers the costs of the service, why not provide it
itself? Why spend the time and money forming the partnership, and monitoring
its outcomes, if it is going to pay for what is done anyway._

Because when providers compete, quality goes up and costs go down. (On the
other hand, when buyers compete, costs go up, which is why single payer
systems lower costs.)

 _The answers to these questions center on the greater efficiency of private
enterprise and the consequent cost savings of public-private partnerships.
Yet, studies of their use in infrastructure investment provide little support
for this presumed cost saving_

Compare the VA to Medicare.

 _Yet, many besides the users of a road benefit from it – the businesses on
its route to name just a few. These would be hurt along with its users if its
tolls reduced traffic flows, so that while tolls can be charged, and the
maintenance expense of the road depends on its use, fees for its use must not
impede its use._

Well, as Hayek argued, everyone setting their own prices is a far superior
system than central planning to set the price of a toll. And whoever would
maintain a road would obviously want maximize their wealth by maximizing the
number of cars that go through without a slowdown. They would not likely
ignore the long tail of cars any more than, say, mobile phone companies ignore
consumers who can "only" pay $20 a month.

In short, this is a _terrible_ reason not to have private ownership . In fact,
by being a smaller, private organization, they might have moved faster to
install EZPass - like solutions, as AT&T predicted back in the 1990s
([https://www.youtube.com/watch?v=4PJcABbtvtA](https://www.youtube.com/watch?v=4PJcABbtvtA))

Much better reasons include simply the guarantee I stated above: people expect
to be able to access lots of roads, so they have to be public as a matter of
policy. Another reason is standardization: they can expect roughly the same
road rules on all roads. And so on.

Perhaps as technology improves, more things can be decentralized and
privatized. Self-driving cars can perfectly adapt to local road rules.
Communities will be able to install their own wordpress-like government
systems that would handle voting, taxation, safety nets, single payer systems
etc.

Governments are just management teams of organizations. That's all. Parks in a
mall open to all visitors are not much different than public parks. Same goes
for community rooms in a co-op.

Recessions can be most easily fixed by giving money to the consumers, to spend
on what they need, thereby "voting with their wallet". This is basically
"single payer systems" or UBI.

Here is a great debate on it: [https://www.youtube.com/watch?v=d0nERTFo-
Sk](https://www.youtube.com/watch?v=d0nERTFo-Sk)

~~~
crdoconnor
>Because when providers compete, quality goes up and costs go down.

Public Private Partnerships are not creating competition and that was never
their intention. The legal set up of such agreements is set up, in fact, in
order to purposely exclude competition.

In the NHS it tends to both drive up costs and filter out money to companies
run by the friends of politicians. It's simple parasitism.

In general, if there isn't a chance to leech off a monopoly of some kind there
is no political impetus to actually privatize. The railway system in the UK
wasn't privatized in order to create competition. That was patently
impossible. It was privatized precisely _because_ it was so well insulated
from competition.

>Well, as Hayek argued, everyone setting their own prices is a far superior
system than central planning to set the price of a toll.

Hayek made the same typical tired old assumptions that never hold - perfect
competition, perfect information, etc.

~~~
EGreg
And Keynes made the assumptions that there are no individual factors, cronies,
and boosting aggregate demand won't have bad side fx.

~~~
crdoconnor
He didn't make any of those assumptions. The latter is probably the most
common misapprehension about what he said, in fact.

------
fivestar
The problem with privatization is a damned if you do, damned if you don't
situation--look at Russia after the USSR caved in and how oligarchs came to
own factories and all kinds of infrastructure simply because of the gold rush
moment where they could get away with it. Privatization in the US works the
same way--the insiders get the deals, the rest of us get nothing. If there was
a way to randomize it, we might be able to make it work.

I don't like the current situation in DC where there is a permanent government
workforce that is mostly unionized. It is bloated and out of touch and that's
where the calls for accountability are coming from. Right-size that government
workforce, make the employees actually work (I know many do, so don't downvote
me--I was a state employee for awhile once upon a time, I damn well know how
many people worked and how many read newspapers and napped all day).

I bet if we were to perform some simple reforms of the federal workforce that
the calls for privatization would cease. It's about creating better outcomes,
and the last Administration was more about creating a huge dependent class
everywhere possible of people who would reliably vote their interests.

~~~
Overtonwindow
I'm a lobbyist in Washington DC and it is appalling The work ethic of federal
employees. The governments hands are tied, they can't fire anyone, and if
there's no work, they just sit around and do whatever they want. The federal
bureaucracy is absolutely bloated, and there's really nothing anyone can do
about it. They get amazing pay, amazing benefits, amazing retirement, and if
they screw up, there is really nothing you can do to them.

~~~
danmaz74
> They get amazing pay

Who gets amazing pay? How much are we talking about? I don't know about the
USA, but usually public employees don't earn that much (in exchange for high
job security).

~~~
Simulacra
Fair point, the pay you can get elsewhere might be higher. I tend to think
anything over $60k a year to be pretty good, which a GSA scale employee can
get to in just a few years. Pay raises are almost guaranteed unless there is a
budget issue, but even then you get it all eventually. They do max out at
about $140k, though. The magic is to retire after 20 years, get the pension,
and then get another job in the private sector and double dip. That's the real
brass ring.

~~~
mljoe
In DC/NOVA area $60k a year qualifies you for rent subsidy and other welfare
benefits. That said $60k is not what federal employees in the DC area start
at, nor is $140k what they normally end at. It's more around $80k - $155k
($180k-$190k if you hit management).

~~~
Simulacra
I'm in the NoVA area. Really? I've got to look into this. Thank you! I will
report back with what I find.

