In times of tight budgets, state governments usually cut spending. Whether the tight budget was self-inflicted or not. One common “cost savings” approach is to fire state workers and eliminate positions; another is privatization of such things as prisons and school busing.
The reasons given for privatizing are usually intended to seem reasonable. Privatizing is supposed to save money, proved higher quality service and reduced red tape. If privatizing did these things, then it would be a good idea. After all, getting better service for less cost and less red tape would be great. In fact, even if privatizing only improved one area (cost, quality, or bureaucracy) then it would be a good thing (assuming it did not make things worse otherwise). However, there is the question of whether privatizing can deliver these alleged goods.
While it is often claimed that privatizing saves money, this does not seem true. While more studies are always needed, the evidence indicates that privatization has tended to increase costs. While supporters of privatization sometimes argue that this claim has not been well studied, this does not prove that privatization saves money.
Intuitively, it is unlikely that privatizing would save money. After all, there is no private sector magic that enables it to do things that just cannot be done by the state. As such, the state could save money by doing whatever would be done by contractors to save money. This would, of course, save the state even more money than privatizing. After all, private contractors need to make a profit on top of what it costs them to provide the service, something the state does not need to do. For privatization to save the state money, the costs incurred by the contractor plus the profit must be less than what it would cost the state to do it. It is not clear how this would be possible without the assumption that the state, as a matter of necessity, must always pay higher costs than the private contractor.
It could, of course, be countered that the state simply must do things inefficiently and in a costly manner. That is, the private sector is just better than the public sector because it is private sector and hence privatizing can save money.
This reply just begs the question by assuming the private sector will be more cost effective than the state and be able to save the state money while making a profit. What is needed is evidence that this can be done. Ideology is, of course, not evidence. As noted above, the existing (albeit limited) evidence is that privatizing is not a money saver.
This is a factual matter. I have no objection to privatization in principle—my objection is based on the evidence that it does not save money. If it can be shown that the only way to save is to go private while also maintaining quality, then I would be for that privatization. If, however, the state can save more money by adopting effective cost savings measures, then that would be the better option. After all, if the goal is to save money, then the greater savings win. That said, it is also important to consider the quality of the services.
As far as quality goes, a stock argument is that privatization is a good idea because it will improve quality. It is often argued that the state is bad at doing things and hence provides low quality services. In contrast, the private sector is supposed to provide higher quality services (at a lower cost). While higher quality (at a lower cost) is appealing, there is the obvious question of whether this is true or merely ideological faith. As with the matter of saving money, this is a factual matter.
While people do point to problems with the quality of state services, it is also easy to point to quality problems with privatized services. These can be horrible, as shown by the way the privatized half way houses in New Jersey were run. Paul Krugman provides an interesting analysis of this problem that is still worth reading. And I am sure most readers are thinking “enshitifictaion” and have countless examples of how the private sector industries are making everything worse. As such, the idea that the private sector will simply be better because it is private is not true.
As I argued with savings, unless it is assumed the state is incapable of providing quality service, there is nothing that a private contractor could do in terms of quality that the state could not do. After all, there does not seem to be a private sector magic that enhances quality. In fact, the opposite now seems true.
There is also the obvious point that the private contractor must make a profit, and this usually leads to cutting corners. After all, lowering costs can be an effective way of increasing profits. However, cost cutting usually involves cutting quality and this practice is common fodder for all those news stories about the horrors of quality cutting to save money. Again, we are in the age of enshitification.
It might be replied that the private sector must have better quality because the contractor must keep the customer happy. However, the people they must keep happy are the same people who would be “customers” of the state. So, if a need to keep people happy leads to good quality, then the state should be subject to this as well. After all, just as unhappy people would change companies (if they could), they would also presumably vote to change the people running the state. Somewhat ironically, it might be easier to change the government than change the companies one must deal with. While the state has a monopoly on power, we (for now) get to vote people in and out of office. In the case of the megacorporations like Amazon, Google, Meta and Apple, we have no role in deciding who runs them or what they do.
I am in favor of what would provide the highest quality services for a reasonable cost. If privatization did this better than the state, then that would be the sensible thing to do. However, this must be based on evidence rather than an ideological view that simply favors the private (or public) sector.
In terms of reducing red tape, privatization clearly does not do that. In fact, it adds more bureaucracy. Instead of two levels (state and state employees) there are now three levels (state, contractor, and employees).
It might be countered that there will be less bureaucracy at the state level because most of it will be privatized. While this would be true, it does not actually reduce the bureaucracy, it just moves it.
It might then be countered that the private sector is just less bureaucratic than the state and hence it will be able to do the same with less bureaucracy.
One obvious reply is that the private sector has its own bureaucracy. For example, try cancelling your internet service if you have Xfinity or dealing with some other customer support issue. Another is that if the contractor can do the job as well with less bureaucracy, then the state could simply take the same approach—unless, of course, there is a contractor magic that must of necessity be denied to the state.
As with cost and quality, the bureaucracy reduction is a factual matter. If privatization did reduce the overall bureaucracy (rather than shift it) while still being able to provide the same (or better) management, then this would be a gain. However, this is something that must be shown rather than being assumed based on ideology.
Overall, if privatization could save money, reduce bureaucracy and increase quality, then it would be a good idea. However, this is not something that should be accepted (or rejected) because of ideological faith. As it stands, the evidence is that privatization is no magic bullet and makes things worse. In terms of why it is done, it does excel at one thing: funneling public money into private hands.
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