
How privatization increases inequality - merraksh
https://www.inthepublicinterest.org/report-how-privatization-increases-inequality-2/
======
bsbechtel
The problem with privatization is it often involves granting monopoly powers
to a private company instead of opening up the market to private competition.
This in some ways is even worse than leaving the entity under government
control because there is an incentive to squeeze as much profit as possible
out of the entity and no pressure from competition to keep the private entity
honest. Privatization in itself is not a problem, and neither is inequality
(in modest form, created by competition, not unfairly), but creating an
environment where the quality of goods and services suffer for the
consumer/citizen because those providing those goods and services don't have
an incentive to do a good job.

~~~
imagist
> The problem with privatization is it often involves granting monopoly powers
> to a private company instead of opening up the market to private
> competition.

Private competition almost always ends in monopoly or trust anyway.

Private competition isn't a stable state. When two companies are competing,
both are trying their best to put the other out of business. It should be no
surprise at all when that eventually happens.

Monopoly, on the other hand, is a stable state--it takes extraordinary
circumstances, usually government intervention, to overturn a monopoly. Even
if a small competitor manages to eat a chunk of a monopoly, the monopoly
company can simply buy them out in most cases. Giant corporations can even
become unassailable by government, as their wealth allows them to lobby for
laws that favor them.

The alternative is for corporations to form a sort of truce, where they don't
touch each other's slightly different markets, effectively granting each other
a monopoly in each other's areas. The clearest example of this is cable
companies not laying cable in each other's territory, but there are plenty of
other examples--Coke/Pepsi, IBM/Intel. This is also a stable configuration
which is more sophisticated than a monopoly. The benefit to corporations is
that it reduces their risk--having to overturn competitors means taking the
risk of overplaying your hand--but there's no real benefit to consumers.

So ultimately, I'm not sure it makes sense to say that monopolies are the
problem and not privatization. _Privatization ends in monopoly._

~~~
saosebastiao
This is entirely false, and there are stacks of economic literature spanning a
200 year timeframe and covering every economic ideology that have explored why
it isn't like that, and surprise surprise there actually is a consensus. High
barriers to entry are _the_ cause of natural monopolies. And not every
industry has high barriers to entry. And oligopolies and collusion have never
been stable.

~~~
imagist
> This is entirely false, and there are stacks of economic literature spanning
> a 200 year timeframe and covering every economic ideology that have explored
> why it isn't like that, and surprise surprise there actually is a consensus.

"It is difficult to get a man to understand something, when his salary depends
upon his not understanding it." \-- Upton Sinclair

~~~
saosebastiao
> "It is difficult to get a man to understand something, when his salary
> depends upon his not understanding it." \-- Upton Sinclair

Ah, so you're in the "reject science" camp. Gotcha.

~~~
imagist
To clarify for anyone who might be confused like saosebastiao about what I'm
saying: the consensus saosebastiao is claiming exists is exactly what you
would expect from economists who are trying to make money for themselves.

It's additionally worth noting that a) there is _not_ a consensus, and b)
consensus is not part of the scientific method.

~~~
saosebastiao
There is a consensus, and in social sciences like economics, consensus
absolutely matters because universal truths do not exist.

And no, the incentives of academic economists are not aligned with industry
like is claimed. If that were true, the majority of academic economists would
not be Keynesian welfare-state supporting democrats like they currently are in
the US.

------
rayiner
This is not convincing.

1) As to user fees. Most public infrastructure in the US is dramatically
underfunded. Public transport, road, and water systems are a major cause of
the multi-trillion infrastructure spending backlog we have (according to the
American Society of Civil Engineers). We pay far too little for services like
water, which precludes municipal water utilities from upgrading
infrastructure. Governments often privatize when that situation becomes
untenable, because they don't want to be the one that raised water rates on
grandma.

2) As to wages, I'm supportive of income equality. But unionized public sector
jobs are a misallocation of resources. If we want to subsidize a particular
kind of job at the public expense, why not start with the lowest income folks
first, instead of relatively well off public sector workers?

Public services in the US are a disaster, and most of it is not privatized.
It's not privatization that drove Chicago to the brink of bankruptcy. It's not
privatization that left the DC Metro in shambles. It's not privatization that
left Atlanta with ancient sewers that dump raw sewage into the Chattahoochee
river. And ironically, it's the poor that suffer. Rich people can send their
kids to private school - bypassing the failing inner city systems that often
spend far more money than neighboring suburban ones. Rich people can take
Ubers everyday and avoid subways that are delayed and shut down due to years
of diverting money from maintenance to pensions and benefits.

~~~
grive
Your argument boils down to "public service is awful". The article simply
states that privatizing is simply making things worse.

Privatizing is not the solution. You said yourself: "We pay far too little for
services like water". Well, yeah. Stop paying so damn little for your
infrastructure then.

Your critique of public service is that it is unable to function with so
little ressource. I don't see that as a failure from the public service
itself, but from the society that should be making it work.

And I mean society, not government. It's too easy to fault the big bad
government for being unable to do it. That's the taxpayers that are in the end
voting for populists that will pledge to reduce spending and taxes to
unrealistic levels, breaking public services, preparing the terrain for
privatization and selling to their friends.

Anyway.

~~~
humanrebar
> I don't see that as a failure from the public service itself, but from the
> society that should be making it work.

One of the strongest critiques of the public sector is the perverse incentives
it creates, including things like irrationally underfunding valuable
resources.

Dismissing that critique offhand is to misunderstand how strong the argument
is.

------
grandalf
The battle between "new deal era problem solving" and "market based
privatization" is a distraction from the actual reality that government comes
up with all the plans, public or public/private, and corruption in both is
widespread.

The only way we will improve upon the quality of solutions is to have a zero
tolerance policy for corrupt officials, regardless of which "side" of this
"battle" they claim to be passionate about.

Is it any surprise that in a country with significant government corruption
such arrangements would also be corrupt? New Deal programs like Social
Security have been raided by corrupt politicians, the PBGC is not actuarially
sound, most of the military's budget is un-accounted for. This is corruption
at the Trillion dollar scale and has nothing to do with the fake ideological
war between public sector ideologues and free market ideologues.

There are several relevant layers, few of which are exposed to democratic _or_
market pressure/discipline:

\- Making the determination that a service is necessary

\- Deciding on the characteristics of the service.

\- Creating a playing field for private sector participants to compete

\- Revising the requirements and playing field to keep quality and value high
(democratic or market-based)

\- Creating transparency requirements for firms and government agencies
participating in public/private partnerships.

\- Assessing the outcomes and reconsidering all of the above based on results.

In our system, each of these breaks down. I can't think of a single example
that has succeeded in all of the above areas.

Notably, privatization has been used by officials to avoid transparency
requirements in recent wars. Chances are this is a major objective of
privatization schemes. Officials from both major political parties have set up
privatized email servers recently to avoid transparency/accountability.

~~~
r_smart
>Creating a playing field for private sector participants to compete

I know a guy whose job is to negotiate contracts for supplies used by the Fire
Dept. in his municipality (or state, I can't remember). We were on a Skype
call once, and he was telling me about a contract he was for a particular
thing and how much they paid for it, and I thought: "That seems high". So I
took 10 minutes to do a search on it and found another reputable company
offering the same good for a little more than half the price. His response
was: "Well they should have showed up and bid on the contract." Between his
apathy, and the way the law works, there was no interest in going and getting
a better deal, or even doing basic market research to use in negotiating the
price. I wanted to strangle him.

And it's all to do with laws and incentive structure. I'd like to think that
in most businesses if you came up with a way to cut in half the cost on an
essential item (I think this was the coats and pants they wear when going into
a burning building), you would at least get accolades and have a strong case
to be made on your performance review. In the public sector, it's all the
same.

~~~
undersuit
>Between his apathy

Apathy? What if this other company has no interest or capacity to deal in a
strict supply contract?

And then you complain about negotiating the price in a bidding system? "OK, we
accept your bid at this price. Now let's talk about reducing the price."

Come on, if you're going to use a personal anecdote to convince people at
least have a good one.

~~~
r_smart
Thank you for reading the story and completely missing the point while proving
it. You seem to assume he would respond how you would respond. He didn't. He
had never heard of the company because he had never looked. When I told him
about it, he didn't care. When I told him they were possibly over paying, he
didn't care. It was trivially easy for me to come up with that info and he had
never cared to look at it before and he didn't care to use it when I told him
about it. He didn't say any of the things you said. He didn't say anything
even close to that. He had no intention of negotiating the price with the
company then were likely to settle on. He was _apathetic_.

*edit: You also seem to have completely overlooked the part where I said it was a combination of his apathy and the way the law works. The two are coincident. Seeking out companies for contracts is risky business as it can trigger collusion / corruption investigations (according to him).

------
qwrusz
I just want to point out nationalization/existing public services also
increase inequality in quite similar ways.

1\. Traffic fines are still public. Still regressive.

2\. Social Security is still public and still has a cap on taxes for > 6
figure incomes.

3\. Wage cuts (granted I think this gets worse when privatized) and benefits
cuts are dealt to public employees all the time. Look at the many underfunded
local pensions/city budgets and how they've chosen to respond.

4\. Private interests into parks and charters schools etc. This also happens
to be an opportunity to give extra attention to the needs of poor individuals
and families, and people of color. There is a debate ongoing, but many charter
schools in poor neighborhoods have better funding/facilities than a would-be
public school there. This is not close to perfect or a panacea, but it has
potential, attacking charter schools without nuanced research is imprudent.

This is a controversial topic. I am not taking sides. There are many
complex/taboo issues and few working solutions so far. Glad it is being
discussed.

~~~
zip1234
2\. Social Security has a cap on tax because there is a cap on the payout.
Edit: that said, this does increase inequality because the money put into
Social Security does very poorly compared to private sector investing. The six
figure salary person can instead invest in something better than social
security.

------
DanielBMarkham
Simple thought experiment.

There are plenty of markets that are mostly private. All have some regulation,
but some markets are mostly left alone.

Let's pick one. How about pickles?

If my local government wanted each of it's citizens to have a jar of pickles,
what would be the best way to do that?

I'd argue that a gift card to Amazon for pickles handed out is probably the
easiest way. They don't get into the produce business, they don't get into the
warehousing or distribution business, they just hand out gift cards. Somebody
else -- who is really good at that other stuff, by the way, handles the rest.

This is what every enterprise learns: stick to what you do best. Let everybody
else to do the same.

So obviously strict product movement and provisioning, such as municipal water
and electric services, are solved problems. There is no value added here based
on who is doing what.

Social services, on the other hand, is a mess of nuance and policy. It's not a
solved, commoditized problem, so it doesn't make sense to have somebody else
do it. If your local government does their social services well, it's
something they've been tweaking for quite some time.

We don't need to continue the thought experiment any further. "privitization
increases inequality" is far too broad of a statement, since easy examples are
found both supporting it and opposing it. Some further narrowing of terms is
required for this to have enough meaning to discuss.

~~~
sharemywin
vouchers don't work over the long haul. look at education prices have
skyrockets. health care skyrockets. I think you need "normalized pricing" were
the government pays X% based on income. So, that hospitals cost 3 times as
much as doctors visits but if your really poor maybe its $9 instead of $3 or
something.

~~~
DanielBMarkham
Vouchers do not work for things that you have to have, are only purchased from
a limited number of suppliers, and there is no feedback mechanism in place.

Contrast my pickle story with another scenario: the local government announces
that everybody must keep a jar of a certain kind of pickles at home. To
facilitate that, vouchers will be provided to purchase these pickles from a
vendor/distributor.

Can you imagine how that'd work out? I can. Pickles would soon be costing 100
bucks a jar. And they'd contain one pickle if you were lucky.

------
jkot
> _Increased socioeconomic and racial segregation_

I think progressive black activists are supporting racial segregation. One
university even offers segregated housing.

~~~
tdkl
How is that progressive?

~~~
jkot
Ask them, I have no right to speak for marginalized groups.

~~~
c0nducktr
Ask who? "Some activists"?

------
vegancap
Usually economic 'equality' is at the expense of wealth creation. So you
almost always end up in a situation where everyone's equally as poor.

~~~
merraksh
Or everyone's equally as rich, or well served. The purpose of a public
transportation service should be to serve the whole city, not to run just the
profitable courses.

~~~
digi_owl
Bingo. Postal services were usually priced such that the high volume central
routes would subsidize the more remote ones.

~~~
bsbechtel
Yes, because our post office is doing great in comparison with its private
competition these days.

~~~
paulmd
I don't know what world you're living in but I have a side business selling on
eBay and my fiance runs an Etsy store and the Post Office's service is head-
and-shoulders above that of private carriers. I suspect you don't have any
experience in this area and based on your other posting you seem ideologically
motivated.

In practical terms, USPS package shipping rates are typically 1/2 to 1/3 of
those of an equivalent service from a private carrier. It's often cheaper to
send something via USPS 2-day than via UPS/Fedex ground service. Their bulk
rates are even cheaper - Media Mail is usually the only cost-effective way to
ship textbooks for example. And Fedex/UPS simply have no service that competes
with first-class or second-class mail.

In fact USPS's service is so effective that UPS and Fedex actually piggyback
on their service to save money. Fedex and UPS will get the mailpiece to the
local post office and the post office will handle the last-mile delivery. This
is called SmartPost service and I can tell you from experience that the
private carrier's involvement significantly worsens the quality of service. It
often spends multiple weeks in the hands of the private carrier and I've
noticed significantly more damage to mailpieces with it. They also provide
subpar customer support on these packages, you cannot refuse delivery or do
other basic postal operations with these packages. The opinion of the private
carriers essentially seems to be that the blame will fall on the postal
service so quality of service is irrelevant.

Nobody is perfect, and all carriers are subject to variation in the quality of
the last-mile delivery. If your USPS or UPS or FedEx guy is particularly
terrible then you will get damaged packages.

~~~
bsbechtel
Yes, I do have a strong belief that environments that allow private
individuals the freedom to experiment/innovate and compete with one another
produce massively better outcomes. However, my comment about the USPS was
based on a series of stories in the news over the past several years about
their financial difficulties and the closing of numerous Post Offices in small
towns across the country.

Keep in mind the USPS has locked in one massive customer that continues to
rely on post mail instead of electronic communication for virtually everything
- the U.S. Government. So while yes, the USPS may produce better outcomes for
the last-mile delivery, it is most likely being subsidized by the U.S.
Government using their services to communicate virtually everything to 330
million U.S. Citizens. In that regard, UPS and Fedex are saving money off the
back of taxpayers when they use the USPS to deliver packages to homes beyond
their most profitable routes.

~~~
ryneandal
I thought the reason for the massive debt solely related to the unfair pre-
funding mandate of retirement benefits enacted by Congress.

------
akhatri_aus
Why are all these think tanks named with such patriotic and nation building
like names. It makes you look at it even more suspiciously, whatever they say.

------
ttctciyf
Pando had an interesting piece a while back on the origins of privatization
[1]. I guess that anyone buying into that would be unsurprised by the
conclusions of the present article.

    
    
      1: https://pando.com/2014/09/25/ferguson-is-our-libertarian-moment-but-not-in-the-way-some-libertarians-want-you-to-believe/

------
dschiptsov
Equality does not exist. It is an abstract concept.

What the best political philosophy gave us is the another concept - _the
equality of rights_ and liberties. Equality before the law. This means than no
person could be discriminated, based on gender, racial, cultural or religious
context.

There is no such thing as social or economic equality. This bullshit has been
oversold to us by political demagogues and populists (as opposed to political
philosophers).

Society means inequality. It means hierarchy. It is based on inequality, it is
driven by inequality no matter what disconnected from reality pseudo-
intellectuals would tell us.

Biology has precedence over physiology, psychology and sociology. Social
inequality comes from genetic and economic inequality. Without the first there
will be no human species, because there will be no evolution. Without the
second there will be no human civilization, which is based upon trade and
capital - resource allocation.

Competition for everything, not just survival and reproduction, but also
social status is a part of reality of any complex ecosystem, including human
societies. Capitalism is a "natural" system of resource allocation, based on
partial rationality, greed and so-called human nature (which in turn is based
on biological markers, psychological traits and social heuristics) that
promotes competition (and also restricting monopolies and regulating markers)
which is based on inequality, has inequality as its driving force.

Not a single attempt to go against physics, biology, against the laws of
ecosystems (sociology) and so-called human nature would ever succeed, no
matter what utopia naive human mind will produce and promote. Every single
utopia that violates any single environmental constraint will fail. It
happened with communism, it will happen with socialism. Economics is very real
- as real as one of the main forces of natural selection (species has to
balance their energy spending according to the constraints of the environment
- this is what economy is).

Inequality is here and always will be, like beauty and ugliness, intelligence
and stupidity, success and failure.

~~~
johnchristopher
> Equality does not exist. It is an abstract concept.

> [..]

> Inequality is here and always will be.

I won't comment on the incoherent and uninformed rambling between your opening
and conclusion.

~~~
dschiptsov
The incoherence here is only apparent. Logical negation of an abstract concept
could be very real, which cannot be said about a reverse transformation.

Consider the similar negation of an abstract concept - _non-zero_.

------
dreta
There will always be people who are poorer than others, but there’s nothing
prohibiting poor people from working their way up the ladder beside government
regulations.

Poor people are hurt most by government programs like welfare, and laws like
minimum wage. Private enterprise allows people to make a living for themselves
by providing services to people who need them. By working harder than others
they can break out of poverty, instead of relying on the government to keep
everybody down for the sake of "equality”. This used to be a norm.

"When governments directly provide a service, they often provide living wages
and decent benefits to workers. When private companies take control, they
often slash wages and benefits in an attempt to cut labor costs, replacing
stable, middle class jobs with poverty-level jobs.”

This is so incredibly disingenuous. All this is saying is that it’s beneficial
to the society that the government creates artificial jobs that can’t sustain
themselves and gives immunity from market fluctuation to people who perform
these jobs at the cost of regular taxpayers who aren’t immune, and have to
train themselves in new fields, and change jobs. The government can’t just
provide these benefits without negatively affecting the rest of the society.

~~~
r_smart
I feel like a lot of people here don't understand this because they've never
been poor in America. I would never want to deny help to someone who needs it,
but as most of these social programs are structured, they're a trap. I was
poor for most of my life. It was making the conscious decision to not be poor,
making a plan and working my ass off that let me get out of poverty. Nothing
got in my way other than my own ability to succeed. Nobody tried to stop me
(well some friends and family were less than encouraging, but I'm used to
that).

So people read your comment, and it sounds like a fiction to them, hence the
downvotes.

N.B.: Yes I took education loans made available by the government. But most of
it wasn't subsidized since it was my 2nd bachelor's degree, and the rates on
that stuff is usury currently. I don't really want to get into a debate about
that stuff, but just mention it as I figure somebody might ask. In a world
without readily available loans, I would like to think I would have just made
a different plan.

~~~
dreta
People like you made US what it is today, and instead of elevating success
stories like yours people would rather complain that life is unfair, and that
others have it better. Parents or grandparents of people who are the middle
class today went through what you did, only a few decades ago.

~~~
r_smart
Thanks for the compliment. I certainly wasn't trying to paint myself as the
poster boy for anything, but I think my story can be interesting for people
who haven't experienced poverty, especially because I bought into a lot of the
kind of thinking you describe, and letting that go was a large part of getting
out of being poor. I actually am a second generation immigrant (my mother is
from Panama), and even after my parents split we had a pretty hard-scrabble
life with her working for minimum wage, and my father being self-employed and
not much better off. Still they never took advantage of welfare programs
(well, not until after I was raised, but that's a different conversation), and
there was a pride associated with not doing it. It'd be foolish to say that
people should never take help if it's available, but I think it's often
overlooked just what a deleterious effect it can have on a person's morale.

Further, as the old saying goes: Necessity is the mother of invention. People
will live in whatever situation they can tolerate, so changing what you can
tolerate is the necessary first step to improving your lot in life.

*edit: changed 'and even after we split' to 'and even after my parents split' because I clearly lost focus on what I was writing in the middle of that sentence.

------
tjic
I continue to suggest that inequality is an actively good thing.

Freeing 100 people from jail will increase their inequality; should we
therefore oppose it?

~~~
Hermel
It depends on where the inequality is coming from. If I own more than you
because I worked harder, it is ok. But if I own more than you because I stole
from you, it is not.

~~~
aninhumer
No, the inequality is still bad, it's the productivity it incentivised which
is good.

If we could get the productivity without the inequality, that would be better.
Maybe that's not possible, but unless we recognise the distinction, we won't
notice if we find a way to achieve that.

~~~
sharemywin
Shouldn't someone get more if they work harder or invent a better mouse trap
or are we all just ants in a giant social machine meant to extract as much out
of us until we die. The problem is too much and you have enough power to
effect the rules.

~~~
aninhumer
No, we should do whatever maximises utility. (I guess I should have said the
utility is the good thing, not the productivity.)

If rewarding people for hard work creates more utility, then we should do
that, but we shouldn't try to moralise it.

------
wrong_variable
I was studying the topic of derivatives for an exam.

It was interesting - the whole point of derivatives was to prevent the fact
that markets are volatile. So its a way to "Price Fix".

That is the entire point of markets ! to allow free floating of price.

I found the whole thing funny, that a market solution lead to the creation of
something that was against the entire point of market.

What the modern neo-liberals and capitalists will learn - is that there is no
perfect system.

~~~
lucozade
You're conflating the market as a whole and an individual participant in the
market.

Derivatives aren't intended to prevent volatility in the market as a whole
(arguably they can have the opposite effect). What they allow is for a
participant to reduce the volatility, to them, of a market price [0].

The advantage to the individual is that they can reduce their exposure to
factors beyond their control, that they have no expertise in and/or that they
do not wish to actively manage. The advantage to the market is that it
encourages more participants.

In this context, one can look at derivatives as acting a lot like insurance.
It doesn't prevent bad things happening (it doesn't prevent market volatility)
but it can cushion their effect on you the participant.

The corollary of making such useful tools for hedging risk is that they can
also be used for speculation too i.e. gambling. But then again, not all of us
registered neo-liberals think the system is perfect.

[0] I'm using the terminology in the post I'm replying to. I'm aware that
there are derivatives on underlyers other than prices and derivatives that
control for factors other than price volatility but I didn't consider that
hedging my language (excuse the pun) added any clarity.

