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The perils of privatizing government

By Karen Aho

MSN Money

A Tennessee city's decision to let a home burn because of an unpaid fee illustrates one of the debates of this election season: How much should government do?

By now, you've probably heard the story about the Tennessee man whose house was allowed to burn down because he hadn't paid a $75 fire-protection fee.

The heart-rending image -- firefighters standing by as a family's home is reduced to ashes and four pets die -- became instant fodder for a fierce election-year debate over what the government should and shouldn't be doing with public dollars.

With the midterm elections looming and Tea Party candidates stumping for drastic cuts in government spending, their foes held out the Tennessee fire as a glaring example of the perils of privatization.

"This is essentially the same as denying someone essential medical care because he doesn't have insurance," economist Paul Krugman blogged for The New York Times. "So the question is, do you want to live in the kind of society in which this happens?"

On the other side, most of the logic went this way: If the firefighters had saved the home anyway, who'd ever pay the fee again?

"I know that if I opted out of the program before, I would be more likely to opt-in now," Jonah Goldberg wrote on National Review Online.

It's not as if people aren't aware of the potential problems of privatization. After 9/11, the nation decided airport security couldn't be left in the hands of poorly paid private screeners. The high cost -- in dollars and human life -- of outsourcing operations to contractors in Iraq and Afghanistan has been painfully clear for years.

But as the recession drags on and governments sink deeper into the red, it's easy to be swept up in the call for government to do less. That's until a picture of what that might look like emerges: public firefighters, in uniform and with hoses in hand, doing nothing.

The public-private debate

Privatization, broadly defined as any transfer of a government service to a private company, is used at every level of government and often with positive results. It can involve work contracted out but paid with city dollars, or fees paid by the users of, say, a service or a roadway.

In the Tennessee fire, a city department responded to the call. But the home was outside the city, where residents were required to pay a fee for service -- akin to a privatized model.

Privatization is almost as old as cities themselves. The ancient Greeks and Romans raised funds by auctioning off the right to serve the public for a profit. Privatization in the U.S. is nothing new either, but it had been largely abandoned by the mid-20th century in favor of a growing public sector.

"In the 19th century, New York City used to experiment with privatizing street cleanup. It was always cheaper to privatize, but the streets didn't get clean," says Elliott D. Sclar, a professor of urban planning at Columbia University and the author of "You Don't Always Get What You Pay For: The Economics of Privatization." "Finally, by the 1890s, they had thrown up their hands."

The history of fire protection is similar. "In the 19th century, cities used to burn down with private fire companies," Sclar says, so they went public.

The basic concept -- protecting the common good by protecting each individual -- has been applied to schools, libraries, fire and police service, trash collection, transportation, infrastructure, health care, social services and more. The success of these services is credited with laying the foundation for a prosperous American middle class with an innovative industrial base.

But as the backlash against "big government" grew in the 1970s and '80s, privatization re-emerged. By 2007, half of all local governments said they had considered privatizing some services, with nearly 90% citing cost-cutting as the reason, according to the International City/County Management Association.

Name a public service today, and somewhere a private CEO is running it: prisons, schools, parks, trash collection, welfare centers, mass transit.

Proponents say the profit motive inspires companies to innovate, streamline and cut costs. The Reason Foundation, a libertarian think tank, says privatization typically reduces costs between 5% and 20%.

A good chunk of those savings comes in the form of reduced labor costs. Today, 30% of public-sector workers are unionized, typically receiving pensions, good health benefits and better-than-average pay. Just 7% of the private sector is unionized. (Public-sector unions also tend to support Democrats -- another reason privatization is a big issue for the largely Republican Tea Party movement.)

"Oftentimes it's about breaking unions," says Dean Baker, a co-director of the Center for Economic and Policy Research, a progressive Washington, D.C., think tank. "Insofar as you can get a lower-cost work force, you can get savings."

Cutting costs by driving down wages

Like many public agencies, Jackson County, Ore., considered the bottom line when it tried to reopen its 15 library branches, shuttered after a loss of federal funds in 2007. While negotiating with the county workers union, it put management of the libraries out for bid.

Library Systems & Services, the only private company to bid, won the contract with a bid that cut costs by about 40% over what the union had proposed. With library hours reduced, the company rehired 70 of the 110 laid-off library members, at their same salaries but with reduced benefits, says Amy Blossom, the manager of the Ashland branch.

An analysis by the Oregon State Library found that while overall library staffing in Jackson was reduced by 36%, the number of librarians was reduced by 52% and the number of those with advanced degrees -- common for the position -- by 57%.

This net result -- lowered compensation overall and fewer benefits -- is typical with privatization, according to the American Federation of State, County and Municipal Employees, a union.

"It's certainly been one of the factors in the growing inequality" between rich and poor that led to the recession, Baker says. "You get rid of those jobs, you put more downward pressure on the wages of other jobs."

Critics also say there's no guarantee that work will be done less expensively, or better, with privatization. In fact, the accounting books at private companies often remain closed. Jackson County, while happy with Library Systems & Services, has no idea exactly how the company is spending tax dollars. (The company declined to comment for this story.)

That veil of secrecy can be costly. Consider the case of New York City's hiring of computer consultant Science Applications International for a project called CityTime. After more than a decade, there's no end in sight, and the New York Daily News reported recently that more than 400 consultants on the project have billed the city an average of $400,000 a year. The city's controller is looking into why a project that was supposed to cost $68 million has cost more than $700 million, the newspaper reports.

Asked to comment for this story, Science Applications provided written statement saying: "CityTime is working now for 73,000 employees with a 99.9 percent accuracy rate and SAIC is eager to have the system up and running in the remaining agencies once those agencies give us the green light. We believe CityTime brings a great value and savings to New York City taxpayers and we are pleased to help ensure its completion."

Ironically, the project was for equipment to prevent time-clock abuses by city employees.

Privatization "is a very mixed bag. Just because something is done in the private sector doesn't mean it's done more cheaply," says Baker, particularly once you factor in "highly paid executives."

"A government that's incompetent to deliver a service is not going to be any more competent to monitor a contractor," Sclar adds.

Get rid of government?

Even when privatizing services does save money, the question remains: How far do we want to go?

Privatization purists say taxpayer dollars should never help pay for programs that would not turn a profit in the private sector or where there's a private alternative. Some Tea Party candidates have gone as far as calling for privatization of Social Security and Medicare, the nation's biggest social programs.

Take Amtrak. Experts think half of its routes would be profitable if run by private companies, says Chris Edwards, an economist and the editor of Downsizing the Federal Government, an online guide of the libertarian Cato Institute. The routes that wouldn't be profitable -- largely in rural areas and outside the Northeast -- "don't make any sense and shouldn't be run," he says.

"I don't think anything should be off limits," he says. He'd like to see the Federal Aviation Administration -- essentially the police of the skies -- privatized, along with airports. The media and federal accounting office could monitor operations, but ultimately customers would drive performance.

If Dulles International Airport in the Washington, D.C., area hired a lousy security company, passengers would be more likely to use nearby Reagan National Airport instead, Edwards says.

Another area ripe for privatization: highways and toll lanes, something that's already being done in some areas. Let private companies raise capital and charge fees, and if you can't pay, slum it on the public pavement.

Life in second class

But how much of this would the public stand for?

Sure, we'll accept first class in the skies. In fact, bizarre pricing gaps among travelers make flying affordable for the average Joes in the sardine cabin (see "The secrets behind crazy air-travel prices").

But should there be two classes of airport security, two classes of fire protection, two classes of public safety? And what happens when those paying to drive on private roads get tired of paying a gas tax to support public roads? It can be annoying to pay both, Edwards concedes.

When Sclar, whose work takes him around the globe, lectures on privatization, he shows slides of what he calls "the transportation of the rich in São Paulo, Brazil, and the United States."

The first slide shows a helicopter, the safe mode of transport in Brazil, where public services have been heavily privatized and public areas are often unsafe. The second shows a New York City taxi -- a very democratic mode of transportation.

"When you don't have good municipal services, societies break down," Sclar says. "The social costs of that can be enormous over time."

So when do you let it burn?

The Tennessee fire has helped put the high-level debate into perspective.

When city officials ordered the firefighters of South Fulton, Tenn., not to put out Gene Cranick's fire, their reasons made good business sense: If you provide a service for free, no one will pay.

But was it the right decision for a community?

As Cranick mourned his losses, strangers across the country called him a freeloader, an ingrate and a jerk. Firefighters from other departments said that the South Fulton officers should be ashamed of themselves. After the fire, one of Cranick's relatives went to the fire station and reportedly assaulted the chief.

Even privatization proponents hedged. "The Obion County fire seems a clear example of government failure, not market failure," wrote Thomas Firey for the Cato Institute. "It's not difficult to imagine what a private fire service would do in an event like the Obion fire: It likely would extinguish the blaze and then send the homeowner a bill."

On the National Review Online, writer David Foster suggested this right business decision may not have been the moral one. Others said the fire was not a good example of privatization anyway: When the subsidized city department entered the market, it unfairly blocked out competitors.

But even in an entirely free market, the question would remain: When your neighbor's home is burning, do you have a responsibility to help, or do you let it burn for a lack of a fee?

Or perhaps, if you're not paid up, we just assume you're not really a neighbor. That's what one poster at The Agonist seems to suggest, blaming Cranick for not having just paid the fee and adding, "Jeebus people, step up and be part of the community already."

The Perils of Police Privatization

FBI Law Enforcement Bulletin

Reflections on police privatization

by Dennis O'Leary

Across the Nation, budget-conscious communities explore the privatization of governmental operations as a way to contain costs while continuing to provide citizens with traditional municipal services. Some services, such as garbage collection, are routinely provided both as private functions and as functions of the government. Increasingly, however, communities are beginning to privatize services that were once exclusively within the realm of the public sector. Examples include food preparation in public schools, collection of delinquent parking violation penalties, and even vouchers for public education.

Recently, the Borough of Sussex, New Jersey, experimented with privatizing another service traditionally administered only by the public sector--the police department. In doing so, this small municipality of 2,500 residents became what may be the first modern American community to privatize its municipal law enforcement.

As the Sussex County Prosecutor, I witnessed firsthand the borough's experiment with private policing. Its experiences, both positive and negative, offer valuable lessons to community and law enforcement leaders around the Nation.

THE SUSSEX EXPERIMENT

The Borough

Like many small communities in the Northeast, Sussex Borough has experienced a general economic decline during the past several decades. Founded before the advent of automobiles, its Main Street district offers very limited parking. As a result, people in the surrounding areas do the majority of their shopping at suburban malls rather than at local stores. Many merchants have found it difficult to survive this "Main Street syndrome," and the resulting vacant storefronts have proven to be something of a blight on the area. In addition, two once-fashionable hotels in the borough have degenerated into rooming houses that have, on occasion, attracted a criminal element.

Because Sussex Borough is a small, fully developed municipality, little opportunity exists to expand its tax base. In fact, during the past several years, the borough has experienced a decline in real-estate-based tax assessments that has brought the community to the brink of insolvency.

Disbanding the Police Department

For a number of years, the borough's governing body strongly considered closing the police department. Even though the four-member force patrolled only on a part-time basis and possessed almost no modern equipment, the borough found it increasingly difficult to afford.

The issue was, of course, a highly political one. Many residents feared that without a regular police presence, the criminal element in the Main Street area would overtake the business district. However, in early 1992, in the wake of a drug scandal that culminated in the indictment of the chief and another department officer, the borough's law enforcement operations were taken over by the Sussex County Prosecutor's Office for a period of several months.

With assistance from the county sheriff, we were able to provide borough residents with a law enforcement presence that they had heretofore not known. This was due, in large part, to the expanded personnel and resources available.

Still, because my statutory mission does not include providing local police coverage, I informed the borough's political leaders that the long-term issue of police coverage would be up to them. For primarily economic reasons, the borough elected to abolish the police department and to rely upon the State police for law enforcement services.

However, it soon became readily apparent that due to limited resources and slow response times, this option would not represent a satisfactory permanent solution. The criminal element in the Main Street district and lawless flavor of the area posed enough of a problem that the residents demanded that the mayor and council enhance police protection within the borough.

Choosing Private Security

Having disbanded its police force for lack of funding, the borough now faced an impasse. Residents sought a more constant uniformed presence than the State police could provide. At the same time, political leaders considered a police department an expense the municipality could no longer afford.

The borough's leaders devised a unique response to this dilemma. They developed a plan to hire a private security company to provide a more constant uniformed presence within the borough. Specifications were drafted, a bid was submitted by a private security company, and a contract was signed between the firm and the borough.

While the security company's initial mission simply was to supplement the State police, it soon became clear that its true mission was to function as a fully independent municipal police department. From the outset, my office received reports of motor vehicles being stopped, summonses being issued, and persons being detained and arrested.

My concern was heightened when reports surfaced that the security guards had mishandled several incidents. In one case, they returned a knife to an individual suspected of assault. Information also came to light revealing that a number of the guards had minor criminal records, primarily for assault.

Partly for these reasons, the borough's experiment in private policing turned out to be a fairly short one. An injunction was obtained by the New Jersey attorney general's office on the basis that the Sussex Borough could not create a private police department without complying with existing State statutes relating to the creation of a police force. While this effectively resolved the issue as it related to Sussex Borough, the privatization of police services is an idea that undoubtedly will be studied closely by other communities in the future. As the residents of Sussex Borough learned, police privatization is a complex issue with a number of compelling arguments both for it and against it.

PRIVATIZATION OF POLICE SERVICES

Not surprisingly, the Sussex experiment with privatization generated a great deal of interest from representatives of two distinct segments of government. Administrators of small municipal governments experiencing financial difficulties similar to those of Sussex Borough saw the experiment as an opportunity to save considerable sums of money without denying citizens a needed service. On the opposite end of the spectrum, the Police Benevolent Association and many law enforcement unions saw the Sussex experiment as a direct threat to their livelihood. While both sides professed their concerns in terms of good government and effective law enforcement, money clearly represented an underlying issue.

I personally opposed the action undertaken by Sussex Borough. However, my concern stemmed not so much from the concept itself as it did from the lack of safeguards provided in terms of accountability and qualifications.

Accountability

The statutes in New Jersey authorizing municipalities to provide police services are similar to those in other States. Once a police department is established, it operates more or less autonomously from the municipality's administration. The chain of command does not go through the mayor and political structure of the municipality, but rather directly to the county prosecutor and the attorney general, and ultimately to the courts. This arrangement was designed to "depoliticize" the administration of law enforcement, a laudable and desirable goal.

The arrangement established in Sussex Borough completely circumvented this delicate balance. The private security company directly reported, and was technically responsible, only to the entity that awarded its contract. History is replete with instances in which police departments were used for dubious purposes by political bosses. This is not to say such a situation developed, or would have developed, in Sussex Borough. However, were such arrangements duplicated in other municipalities, the potential for corruption and abuse certainly would grow accordingly.

Qualifications

As county prosecutor, I was concerned also with the issue of qualifications. As in every State, an entire statutory framework exists in New Jersey relating to hiring qualifications for municipal police officers. Candidates undergo psychiatric testing prior to being offered employment, as well as intensive training on dealing with people in difficult situations, criminal law (including search and seizure), physical fitness, marksmanship, and various other matters relating to law enforcement work.

The training received by the private security guards was limited at best. In fact, the only real training the guards received focused on the use of guns. By contrast, firearms training generally represents a relatively minor component of the instruction provided to public sector law enforcement officers.

It is reasonable to assume that municipalities offering positions of authority, which include the carrying of a firearm, at relatively low salaries, will attract a wide spectrum of applicants. Some will be attracted to the job out of a sense of public commitment. Others will be motivated by other, less desirable factors.

Therefore, to ensure the integrity of any municipal law enforcement force, a psychological screening process is not only desirable but essential. However, this is only a first step. Training in areas such as search and seizure must keep personnel abreast of constant changes in the law. Even with intensive training, police officers, as well as attorneys and judges, make periodic mistakes in these areas.

The security guards in Sussex Borough received no training in these areas. The security firm explained this deficiency by claiming that, as private citizens, the guards were not bound to comply with the fourth, fifth, or sixth amendments (rights of defendants).

I vigorously disagree. While private citizens are not obliged to afford such rights to other private citizens, a convincing argument could be made that the security guards did not act merely as private citizens. They were, after all, duly hired agents of a municipality.

Nonetheless, the guards were seriously unprepared for their responsibilities. In short, the hiring of a private security finn in lieu of a municipal police department not only circumvented a longstanding statutory framework, it also constituted a giant step backward in terms of law enforcement professionalism.

CAN PRIVATIZATION WORK?

Is it possible to have a professional, qualified, responsible police department that operates fully within the private sector? As I have indicated, my objections to the Sussex Borough experiment centered on qualifications and accountability. Both areas could be addressed adequately by simply amending laws and regulations to provide accountability along a similar chain of command as those of public police agencies. In addition, legislatures could mandate that in order to win a bid for municipal policing, private security companies must meet the same screening and training criteria as public police departments.

Could private security someday replace public policing? There seems to be a national trend among legislatures to grant greater police powers to private security. It is conceivable that the legal obstacles to private security firms assuming "public" policing powers could be overcome. In fact, from a legal perspective, this transition could be accomplished with little difficulty.

Whether municipalities embrace the concept depends on a number of factors. Communities should consider these factors carefully before embarking on the road to privatization.

CONSIDERATIONS

Like many private waste removal companies, large security firms could supply police coverage for several contiguous municipalities, and thereby affect economies of scale. Such an arrangement not only would keep costs down but also would provide greater promotional opportunities for law enforcement officers, because they would be working for a larger enterprise. In addition, the degree of professionalism theoretically would improve over small police departments that possess limited training resources and equipment.

The financial savings to municipalities could be dramatic. In the short-lived Sussex experiment, the borough realized a savings of over 50 percent. While I suspect that a portion of this amount resulted from a "loss leader" by the security firm in its effort to win the borough's initial bid, I believe that a practical savings of 25 to 30 percent could be realistic for many jurisdictions.

Clearly, however, such arrangements would not be without considerable drawbacks. The large amount of money private security companies would have to invest to hire and train qualified personnel would be reflected in any realistic bid. Further, while competition may serve to keep costs to municipalities down initially, once a security company becomes entrenched in a particular area, its proximity to nearby jurisdictions would allow it a distinct advantage to underbid other firms. The resulting monopoly could significantly erode any long-term savings that the municipalities anticipate.

Aside from costs, however, other important considerations remain. Under private security agreements, municipalities would possess considerably less control over their police force than afforded by the traditional public policing model. While public police departments enjoy some degree of autonomy, police chiefs often are appointed by municipal governing bodies. These bodies generally review and approve police budgets, as well.

But, more subtle "controls" also forge a link between a municipality and its police department. In many communities, for example, when the police department promotes a patrol officer to sergeant, a ceremony takes place before the town council meeting. Generally, despite periodic "rocky moments," a warm and friendly relationship exists between the governing body and the police department of a small town.

Municipalities that enter into private security arrangements suddenly would find themselves dealing with corporate America. The warm and friendly relationship as it once existed between local government and the police force would change forever. Because large private security firms could conceivably hire employees from anywhere and relocate them, municipal government officials and citizens may find themselves no longer dealing with police officers who are also friends, and in some cases, relatives. While this certainly could be seen on one level as a positive outcome, the fact remains that small town residents appreciate being afforded certain informal courtesies by their police department. They enjoy being known by name and feel secure being protected by members of their own community. To a large degree, the "personal touch" afforded by local public departments would become a casualty of police privatization.

Further, in the interest of efficiency and scheduling, private security guards in large firms might be assigned from municipality to municipality. This would allow little opportunity for guards to develop allegiance to any one community, let alone to individual residents or municipal officials. The unique advantages of local police coverage--intervening when an otherwise well-behaved youth becomes associated with the wrong crowd, checking on elderly residents, noticing a suspicious new person in town--would be missing.

In the final analysis, it may be these intangibles that form the basis for debate in municipalities considering the privatization issue. Communities must decide whether forsaking these intangibles is worth any monetary savings realized by privatizing the police function.

In the interest of accuracy, however, communities should keep the issue of police privatization in perspective. Private policing does not represent a radical new concept. Indeed, the idea of government-administered, or public, law enforcement is of relatively recent origin--occurring in most parts of the world within the past 100 years. Prior to the advent of public policing, groups of citizens wishing law enforcement protection organized it privately, without direct government intervention. During the formative years of the American frontier, citizen posses and private railroad guards provided essential law enforcement services. In many ways, the privatization of policing simply represents a new take on an American tradition.

CONCLUSION

Is it legally possible to create a private police department? Probably. But, more important questions remain. Would such an arrangement work? And would the savings be worth the effort? The Sussex Borough experiment may have been too brief to fully answer these questions. But, they will undoubtedly be asked by economically challenged communities around the Nation.

Although private policing may offer significant initial cost benefits to small municipalities, the savings would probably diminish as large security firms formed regional monopolies. Municipalities then may find that they lost far more than they gained.

Because many of the functions that local police departments perform relate to providing services to their communities in addition to mere code enforcement, ill-planned privatization could bring about unanticipated change. Communities should consider carefully the effects of all these changes when weighing the benefits of private, versus public, policing.

Mr. Dennis O'Leary serves as the Sussex County Prosecutor in Newton, New Jersey.

COPYRIGHT 1994 Federal Bureau of Investigation

COPYRIGHT 2004 Gale Group

Bibliography for: "Reflections on police privatization"

Dennis O'Leary "Reflections on police privatization". FBI Law Enforcement Bulletin,The. FindArticles.com. 16 Nov, 2011.

COPYRIGHT 1994 Federal Bureau of Investigation

COPYRIGHT 2004 Gale Group

Types of Government and Other Regulations

ehow

Types of Government Regulations

Will Dean

Often a fault line in American politics, government regulation is present in a lot of public life. Water and air quality fall under government regulation, as does the safety and composition of food products. Businesses are also regulated by the government, and so is the communications industry. Regulation is generally undertaken to preserve some public good, like safe drinking water and access to public resources.

Food and Medicine

• Created in 1906, though known under a different name, the Food and Drug Administration (FDA) ensures the safety of food and medicine sold and produced in the U.S. The FDA sets and enforces standards for the presence of dangerous or foreign compounds in foods. It also tests the danger and efficacy of any medicines produced in the U.S. Tobacco products, which are known to be dangerous, are also under the purview of the FDA.

Communications

• The airwaves are considered a public space, since there is a limit to how much information can fit in a particular bandwidth. The Federal Communications Commission (FCC) regulates who can broadcast TV and radio signals by issuing licenses to stations. The FCC also regulates media transmitted by satellites and cable. What can and can't be broadcast is also regulated by the FCC, including profanity, nudity, violence and other things considered objectionable.

Trade

• The U.S. federal government regulates all interstate trade and businesses. Through the Federal Trade Commission (FTC), the government attempts to protect consumers from unfair practices and ensure that competition is preserved. This means stopping companies from price-gouging if they are the only source for a certain good in an area. It also means stopping monopolies, where one company uses its market presence to prevent competition.

Air and Water

• With the Environmental Protection Agency (EPA), the U.S. government regulates the safety of the air and public waterways. This includes stopping people and companies from putting dangerous chemicals or compounds into the water and air. This is done to protect public health and preserve the environment.

References

• FDA: What We Do
• FCC: About the FCC
• FTC: About the Federal Trade Commission

Will Dean has worked as a freelance journalist and editor in Philadelphia for three years. He has written on a wide variety of topics, including local news, arts, music, history, food and urban sustainability, for a variety of publications, like the "Philadelphia City Paper" and "GRID" magazine. He is also a college graduate from the College of New Jersey.

By Will D, eHow Contributor

See also

Regulation From Wikipedia, the free encyclopedia

Code of Federal Regulations