
Examples of How City Services Privatization Leads to Inequality Are Piling Up - merraksh
https://nextcity.org/daily/entry/privatization-water-utilities-inequality-poverty
======
nkoren
I consider myself a relatively gung-ho free-market type, where it's
appropriate. Utility and transport networks are one place where it isn't
appropriate. This is for three fundamental reasons:

1\. A free-market dynamic requires an actual market. If the buyer can't chose
among competing sellers, then it's not a market. At the grocery store you can
choose from among many different sellers: that's a functional market. The
point where your plumbing connects to the water main, simply isn't.

2\. The entire purpose of infrastructure is to generate positive
externalities. Ready availability of transport, water and electricity, etc.,
makes it easy and desirable to do business in a place and with each other.
This leads to emergent urban economies, where mutual comparative advantage
among a heterogeneous population leads to mutually beneficial exchange, which
in turn leads to more growth and prosperity for everyone. The fewer low-level
frictions, the more prosperous everyone becomes. But capturing value at the
point-of-use -- which is what private operators generally do -- creates a low-
level friction with substantial knock-on effects. Every dollar you extract
from the farebox of a public transport system, for example, is many dollars
removed from the wider economy. It's much more appropriate to subsidise the
infrastructure networks and then tax the positive externalities (via sales,
income, and property taxes) _after_ the uplift has been created.

3\. There are broader socio-economic issues of accessibility to services that
profit-driven companies have no incentive to be responsive to.

~~~
koolba
> I consider myself a relatively gung-ho free-market type, where it's
> appropriate. Utility and transport networks are one place where it isn't
> appropriate. This is for three fundamental reasons:

Cable internet falls into that category too. The common setup in the USA is
effectively a municipally sponsored monopoly.

> 1\. A free-market dynamic requires an actual market. If the buyer can't
> chose among competing sellers, then it's not a market. At the grocery store
> you can choose from among many different sellers: that's a functional
> market. The point where your plumbing connects to the water main, simply
> isn't.

Sure but rather than directly hiring N people to run the water works and
plumbing crews, the city could contract out the maintenance of those things to
a private company. It would still own the pipes and be on the hook for the
maintenance, but it wouldn't be directly employing the workers. If company X
doesn't work out (say due to crappy service), then they could award the
maintenance contract to company Y. In this model, the private company doesn't
get a local monopoly on the resource, only a contract to provide the service
for some limited duration (say N years).

It may well be that there are services that are _not_ profitable to operate.
It's governments job to fund those based on excess tax dollars it collects
from other services. A bus route to a poor part of town that it's particularly
popular isn't going to fund itself. Government smooths those bumps to provide
services where they're needed.

~~~
sseagull
> Sure but rather than directly hiring N people to run the water works and
> plumbing crews, the city could contract out the maintenance of those things
> to a private company.

I know this can work, but in addition to the usual misalignment of goals
between public and private sector, I still see more inefficiency with this
than just letting the government do it.

For example, the government has to pay all the workers (indirectly, at least).
On top of that, it has to pay to negotiate contracts, and an entire layer of
oversight of the contractors (which also have their own HR and bureaucracy
that you are paying for). On top of that, they will likely have built-in some
extra profit to give them some flexibility in case they don't get the next
contract. Plus money for lobbying in many instances.

If you find the contractors aren't doing their job, now you will probably have
to get lawyers and whatnot, and have expensive, time-consuming litigation.
Then, if the government wants to change companies at some point, you have a
large expense in finding a new one, with bidding, etc. And that is if there is
another contractor available in your area. And then you have lobbying,
cronyism, and other political issues.

The entire reason for hiring another company to do this is to get around
public pay and pension issues. If this is all just a workaround for that, fix
the source of that problem, rather than trying to abstract away
responsibility.

~~~
koolba
> If you find the contractors aren't doing their job, now you will probably
> have to get lawyers and whatnot, and have expensive, time-consuming
> litigation. Then, if the government wants to change companies at some point,
> you have a large expense in finding a new one, with bidding, etc. And that
> is if there is another contractor available in your area. And then you have
> lobbying, cronyism, and other political issues.

Business contract law is _much_ simpler to deal with than employment law. Plus
it wouldn't be the governments job to deal with individuals at all. Only the
end result of the service provided. It'd be the private companies job to deal
with their own employees and contractors.

> The entire reason for hiring another company to do this is to get around
> public pay and pension issues. If this is all just a workaround for that,
> fix the source of that problem, rather than trying to abstract away
> responsibility.

That's exactly the point! Because no private company would be stupid enough to
enter those types of agreements with their workers because they can't maintain
their end of them. The government can't do it either (without bankrupting
and/or eroding it's tax base) so the solution is to prevent government from
ever having a chance to enter those agreements. Otherwise some weak willed
politician will hand out defined benefit plans like it's candy to get votes
for _one_ election, only to doom their children's children for years to come.

~~~
sseagull
That's an interesting way of looking at it. Not sure I completely agree or
that there isn't a better way, but it's certainly a point of view I didn't
see. Thanks

------
koolba
This article is terrible. Sure you can find examples of privatization having
less than stellar results. But it's not uniformly so and I doubt it's even
commonly so.

> The report, “How Privatization Increases Inequality,” is full of such
> examples. There’s the transit system of Nassau County, New York, privatized
> in 2012 in an effort to cut costs. Almost immediately after Veolia signed a
> contract with the city, the company reduced service on 30 routes, and
> eliminated several lines all together. A year later, fares increased.
> They’ve gone up every year since. More lines have been eliminated, and still
> the transit system continues to face budget shortfalls.

If they care so much about which lines are operated, that should be part of
the contract. Why would the company continue to operate lines that would be
running at a loss? Sounds like the residents should be complaining about
whoever negotiated this terrible contract (i.e. whoever was wined and dined
into signing it).

> Oftentimes, it’s worker’s wages, which worsens income inequality. Government
> jobs used to offer healthy salary and benefit packages, making them steady
> careers that could stabilize communities, the report notes. But privatized
> positions for the same work often offer lower wages, reduced benefits and
> little to no retirement security.

Who's going to pay those healthy salaries and pensions? If the latter are just
unfunded mandates, it's hardly fair to compare them against a private company
that has to cover it's obligations as they come in, via defined contribution
plans or into a sinking fund, based on the money it's actually collecting
(v.s. future higher taxes).

~~~
Retric
The basic privatization question is this:

Service was not producing a profit, it will be. Where exactly is that money
coming from?

~~~
merpnderp
Historically it's from improved efficiencies, which privitazation incentivizes
and government does not.

~~~
pdabbadabba
That's certainly the party line, but is there any evidence that it's actually
true? I've seen little to support it, especially when you disregard
"efficiency" gains that come from cutting what a municipal agency would have
called "services."

The problem, as many others are also pointing out, is that government entities
and private businesses typically have (and often should have different
motivations). So when a private business takes over and makes things more
efficient, this often comes at the expense of things that we want our
government to value, not economize on.

~~~
djschnei
Interesting case. Isn't it true, however, that everything is economized
whether we like it or not? Even public works that add "value" still rely on
finite resources (human labor, natural resources, etc...). Can we really just
ignore the laws of resource allocation because we "value" something? If we
really "valued" something, why not let the market strike the balance between
value and efficiency?

~~~
Retric
Externalities, generally prevent profit from aligning with optimum resource
allocation for society. I may only be willing to pay X to ride a subway and it
might cost Y to provide subway service, but having one less commuter on the
roads is worth Z to society. In a classic free market if X < Y then I don't
ride the subway, but if X < (Y - Z) society is better off if I do ride the
subway.

Further, subways systems, electricity, water, etc are far more efficient as a
single provider which suggests a heavily regulated utility. But, if the
government is going to subsidizes and heavily regulate a company like this
then it's not really a company any more just a government organization with a
funky org chart.

To further complicate things, this opens the door for a huge range of
corruption as someone is legally allowed to take taxpayer money and profit.

~~~
djschnei
"Z" is a premise I disagree with; especially when government/force is
involved. If you want to ride the subway to a determent of yourself for
society's benefit, that's your decision. Hell, I might even be sharing the
subway with you. However, I'm not about to make that decision for others.
Pushing aside the individual for the collective is something I am vehemently
opposed to on moral grounds. So, I guess I understand what you're saying, I
just disagree with the premise.

~~~
Retric
It's not about forcing people to ride the subway it's building and subsidizing
a subway so people will ride it. Abstractly, it's little different from
building and maintaining a bridge.

Supose you save 1/1,000th of a second of commute time on average per driver
that takes the subway * 1,000,000 drivers taking the subway. That's 16 minutes
eat way or 30 minutes a day. Ethics or not that _is_ actual value.

Now if you you feel morally opposed to subsides and are not willing to pay for
them fine, but that does not mean they can't work. Further, building and
maintaining infrastructure has been one of the hallmarks of government for
8,000+ years it's not going to change any time soon.

But hey, if you want to argue for less efficient systems that's your right.

~~~
djschnei
I don't oppose subsides, per se; I oppose the involuntary collection of tax
money, or any involuntary transfer of property. If for example, a subway is
inherently more efficient than other means of travel, and it can be funded via
ticket sales, I am SO for it. If it can't survive or exist without the
involuntary collection of property, then I oppose it.

And infrastructure has been a major role for governments for quite some time,
and I completely agree it's a legitimate role. However, it should be based on
usage fees.

------
csomar
These are examples of monopolies, and not free market. I think, and it's my
opinion: If you make something private in a _free_ market, it's always good
for quality and prices.

There are two possibilities that can make this promise false:

1\. The market is not free. For example, a metro subway. It's a monopoly. You
can't have 6 subway lines and you pick one of them.

2\. The market was heavily financed by tax payers money. For example, a bus
route that it is not profitable but still running for the benefit of the few
poor people using it. This can happen in a government situation but not in a
private situation.

~~~
jrockway
> 1\. The market is not free. For example, a metro subway. It's a monopoly.
> You can't have 6 subway lines and you pick one of them.

New York City had three subway companies until the 1940s and the city took
them over (one was already owned by the city). Tokyo has two metros and a
large number of independent railroads (one metro is owned by the city; one
railroad was owned by the government until the late 80s).

~~~
bryondowd
Were these companies actually competing, or just operating separate but likely
connected routes? In other words, if you need to go from specific place A to
specific place B, what are the odds you could choose which company to use. If
location rather than choice dictate which service you use, it is essentially
the same as what we have with cable companies. Each company has a monopoly in
the zones they operate, and can charge whatever the consumers will bear
without worrying about being undercut by competition, because a competitor
would need to build significant infrastructure at which point the original
company would just lower prices and the competitor would be unable to recover
their costs.

It makes sense that infrastructure like this should be publicly owned, even if
operation is contracted privately.

~~~
jrockway
Both. Sometimes the routes compete, sometimes they're complementary.

In New York, look at the IND Concourse Line and IRT Jerome Avenue Line,
they're 2-4 blocks apart for the entire route. Meanwhile, much of the city has
no subway service at all. More nefariously, the IND built a totally-
unnecessary lower-level platform at 42nd St./8th Ave. to block the IRT's
extension of the Flushing line. Indeed, when this line was finally extended a
few years ago, cost was added by having to demolish this superfluous station!
(Who knew that the city would eventually own both.)

In Tokyo, the Tokyo metro Fukutoshin Line basically exists to compete with
JR's Yamanote Line for people traveling between Ikebukuro/Shinjuku/Shibuya.
Sure, now there's a one-seat-ride between Shinrinkouen and Yokohama... but
does anyone do that except to post videos on YouTube? I doubt it. Eliminating
a transfer probably wasn't worth the billions of yen spent to build a new
subway line.

These are the most egregious duplications I can think of, but some are more
subtle. I can take the IND or IRT from home to work in the exact same amount
of time, depending on whether I want to walk one block in Manhattan or the
same distance in Brooklyn. When I lived in Tokyo, we would go out of our way
to avoid paying the higher Toei fare when Metro would suffice. (It was called
"Eidan" then though!)

~~~
ceras
> In Tokyo, the Tokyo metro Fukutoshin Line basically exists to compete with
> JR's Yamanote Line for people traveling between Ikebukuro/Shinjuku/Shibuya

Wasn't this also important for relieving congestion by increasing capacity
along that corridor? That's part of what Manhattan is doing with the new 2nd
avenue line, which is a 5min walk away from the existing over-capacity
Lexington Avenue line.

~~~
jrockway
True. True.

But a lot of the Tokyo Metro is overcapacity (Hibiya Line especially, IIRC),
and they didn't build a line that competes with their own line. Isn't it
convenient that they chose to "help" JR relieve their capacity problems,
without worrying about their own ;)

I stand by my argument that railroads can compete with each other.

------
prasadjoglekar
There is inequality in city-services, whether private or public. The
underlying economics of delivering water or transportation don't change
because of ownership. It's just that inequality manifests itself differently.
I actually skimmed through the report. Example after example shows how poor
people are gouged by fees piling up, onerous interest rates and so forth. That
has nothing to with privatization - there are just as many examples of public
sector asset forfeitures.

Most cities and municipalities have huge budget deficits - primarily due to
excessive labor and pension costs. As a result, services have to be cut or
rationed. In a public ownership setting, services just happen to be cut where
they are least politically problematic. Private ownership, faced with the same
problem, might cut services as well as raise prices. Citizens expect services,
and don't want to pay too much for it. Funding solutions typically lie with
those that don't have political voices, and those that can't just get up and
leave.

~~~
pdkl95
> There is inequality in city-services, whether private or public.

While implementations can be a problem in any system, private business has an
additional expense: profit for the owners. Labor and production costs will be
roughly similar, but private will always have some amount of the money
diverted to profits (which can take many forms). Worse, because many of these
services (e.g. water) are a natural monopoly, privatizing the service won't
gain any benefit from competition.

> primarily due to excessive labor and pension costs

This is a common talking point that isn't based in reality. We've been cutting
services for a long time, while _also_ cutting _revenue_. If corporations
actually paid proper taxes and/or we taxed wealth-creation properly as income,
then most budget deficits would disappear.

> raise prices

That's the point; governments can do the equivalent by increasing taxes.
Unfortunately, most people panic at the very idea.

------
fsloth
Free market works in fixing prices if there is competition. In the case of
privatized municipal services only is there no competition, the residents are
forced to use the service. It's often a super-monopoly.

------
chatmasta
I hear the "government hiring private contractors" argument often as a
compromise between complete free market economics and public utilities.

The argument falls apart when there exists effectively no competition between
contractors. At thiat point, the government may even end up paying more for
its favorite contractor (whether by choice or lock-in) than it would if it
managed its own staff.

The advantage of privatization is supposedly efficiency. Private companies
must be efficient in order to survive, in large part because if a private
company is not efficient, a competitor will be. Therefore, in order to capture
this efficiency advantage, there must exist at least two private competitors
for every government contract.

I'd be interested to hear of solutions that prioritize competition between
private contractors, rather than encouraging nepotism or cronyism in the
procurement process. Otherwise, you're just replacing the public monopoly with
a private one, losing any gains from what should be the chief advantage of
privatization: a competitive market.

------
fruktstav
As far as I know, all prices are unreal - meaning that products prices have no
actual fixture in what it costs to create them. For example, I create a
beautiful night gown with materials costing me $5 and sell it for $10 -
because I think that I should get $5 for my 30 minutes of work I put in
creating. If somebody in China makes it, maybe they can buy the materials for
5 cents and feel like charging 10 cents for the entire night gown - because
that's a "standard chinese wage" (inb4 exaggerated numbers). Meaning that my
nightgown is valued at 100 times the price of the chinese counterpart. This
means that any comparison between my nightgown and the chinese one is
meaningless, because the person in China doesn't do the job 100 times more
efficently, or with materials created 100 times cheaper. Meaning that racism,
sexism and other prejudice values are more important than actual quality and
profit. It's because the system isn't based on declaring true value of
anything, it's a (incredible crude) system of driving people into overpricing
everything for profit - and calling the final agreed upon price a real price,
even though the seller often has the upper hand and can simply choose prices
by deflating the supply. That's typically done by buying competators, bribing
lawmakers and if all else fails: underpinning the competitions prices until
they die. So to make an economical argument about a humanitarian issue is no
better than giving a religious argument.. "Our current numbers are telling us
that you can't have welfare" is equal to saying "Our current belief system is
telling us you can't have welfare". Why? Because the idea that capitalism can
give us a fair handle on price, supply and specifically demand is just
retarded. The only way to create a real scientific price is to have a planned
economy that tracks all demands and supplies simultaneously, so that demand
doesn't mean lust.

------
Pmop
Ask any brazilian if he can think of any public service that works.

~~~
merraksh
Then ask a German, or a Swede. The answer might be different.

~~~
andrenth
Then compare the size of the state and the amount of economic freedom in these
countries to Brazil's and everything will become clear.

------
tjic
Front page of news.yc:

3\. How privatization increases inequality

4\. Examples of How City Services Privatization Leads to Inequality Are Piling
Up

each with EXACTLY 7 up-votes.

Sock-puppets, or just a voting brigade?

~~~
merraksh
I submitted the NextCity article after reading the article, but then decided
to submit the report as well. I do think they can be read without redundancy,
as the NC article is a bit easier. I'll leave it up to the mods to drop
either, though for completeness that if one of them is drop it should be the
NC one, not the original report.

I don't know sock puppets or voting brigades in HN, but I would expect those
who upvoted one to do the same to the other. They appeared next to each other
in the /new page.

~~~
DanielBMarkham
Meta comment. I'm not even sure this is the right place for it.

I love things that are fascinating and make me think. Privitization and
inequality are in that category.

I don't like feeling that I'm being bullshitted. Two articles on the same
politically-charged topic both at the top of HN is whack. I do not want to be
on the end of somebody's PR funnel.

Not your fault, I know. Just please post some more Erlang innards stories
between the "Evidence continues to validate this thing I know you guys aren't
going to agree on" stories.

~~~
merraksh
I already said why I posted both. There have been lots of duos and trios of
related and equally oriented articles on HN top30 before. Feel free to channel
your frustration directly to the PR funnel you mention.

 _Just please post some more Erlang innards stories between the "Evidence
continues to validate this thing I know you guys aren't going to agree on"
stories._

Not knowing a single bit of Erlang, I will post stuff that I believe _some_ HN
folks will be interested in. If you want to see more Erlang innards stories,
post them.

------
KODeKarnage
Pfft, how public city services stole from everyone via inefficiency and rort
for decades maybe?

YC is broken if this is up top.

