Privatization in the USA

November 25, 2007 4:29 AM

Give me examples of government services in the USA that have been privatized, and tell me if the service improved or got worse.
posted by zenja72 to Law & Government (23 answers total)

Mining safety oversite. Worse.
posted by Max Power at 5:52 AM on November 25, 2007

If you mean federal services, the feds tend not to provide services that can be easily privatized. For example, in the US, the federal government never provided air or rail or phone service in the first place, so these things were private from the start. However, if your question extends to municipal governments, a common example can be found in public utilities. In California, this was a spectacular disaster, but you will also be able find examples where it worked well.
posted by ubiquity at 5:54 AM on November 25, 2007

Some state functions that have been widely privatized are Medicaid/Medicare enrollment and eligibility determination, administration of children's health insurance programs and the "welfare to work" type programs. It should be freely documented which programs have been successful or not.
posted by 543DoublePlay at 6:08 AM on November 25, 2007

Post office, more or less privatized, hard for me to say if it's better or worse.
posted by Rain Man at 6:23 AM on November 25, 2007

Prisons. Still a great deal of controversy over whether they are more efficient or humane.
posted by googly at 6:24 AM on November 25, 2007

California didn't work out that well, but many economists argue that a large factor was that it wasn't fully deregulated.

For instance, utilities were required to buy all of their power on the spot market, rather than allowing them to sign long term wholesale contracts. However, the rate offered to consumers was set by the state. When the price in the spot market went high because of scarcity conditions:

A) consumers had no incentive to shed load
B) the local utilities lost a lot of money. Of course, some traders were being shady as well.

If you want to see an example in another country of a shining success of deregulation, see the example of coffee in Rwanada. Previously growers were required to sell their beans to the state at a price fixed below the market price. Because of this, growers had an incentive to produce inferior coffee and produce less of it. The government than captured the spread in prices on the international market.

Today, growers have the freedom to contract with anyone they like. The GDP coming from coffee has shot up, coffee producer income has shot up, and the quality of the coffee is known around the world.

Closer to home, remember the phone company. Consumers were required to buy long distance from the local phone company. Today, we can of course choose our provider. This has led to innovation in phones, and many more options. Of course, cell phones and VOiP changed the picture again, but this was unrelated to the industry's restructuring.

The opposite side of market based pricing is price setting (with varying levels of rationality). See gas-at-the-pump prices in Venezuela as a worst case example.

Deregulation largely depends on the way the industry was deregulated.
posted by Pants! at 6:28 AM on November 25, 2007

Toll roads and toll bridges are examples of privatized parts of the transportation network (well, when the road/bridge is owned by a private company -- many toll roads are actually publicly owned). One example that is generating plenty of local controversy is down in Texas -- one issue of concern is how restrictive the "DOT shall not compete with the toll road" clause in the contract actually is in terms of what the DOT can and cannot do with the nearby (public) highway. More examples of this can be found overseas.

The biggest example right now, though, would be military services -- in decades past, the US armed forces did their own laundry and cooking and construction; security for US generals and diplomats was provided by employees of the US government; etc. Now, as can be seen in Iraq and Afghanistan, these tasks have been outsourced to companies like Haliburton and Blackwater.

Some people criticize charter schools as examples of privatization -- Naomi Klein had a recent article about this, perhaps in the Atlantic? I don't know much about charter schools, but I think that is a somewhat more complex example than a privately owned highway or Blackwater, because a charter school can be run for profit, or owned publicly -- the defining feature is actually the administrative controls, not the public or private ownership.

Some aspects of disaster response and foreign aid delivery are becoming privatized, with mixed results. (And big aspects of both have been outsourced from the government to non-profits, which isn't quite "privatization" narrowly defined, but isn't quite "public" in the traditional sense either.)
posted by Forktine at 6:33 AM on November 25, 2007

Some aspects of medicare provider enrollment. Much, much worse, and a huge headache for health care providers' offices, although there have also been changes to controlling regulations to further complicate matters. Significant difficulties come up as the contractors attempt to interpret the regulations, partly because there are different contractors in different regions and then CMS still involved at one end and they don't always agree on what things mean.
posted by dilettante at 7:50 AM on November 25, 2007

California didn't work out that well, but many economists argue that a large factor was that it wasn't fully deregulated.

Many economists have a horse in that race, so of course that is what they would argue. The fact remains, however, that cities in California with municipal power (Anaheim, Los Angeles proper) had power when cities with private provision (say Santa Monica) were screwed.
posted by dame at 7:54 AM on November 25, 2007

Well, a huge part of the US military's security functions have been farmed-out to private contractors. How that has worked-out depends, I suppose, on your point-of-view.

Here in Indiana, our Governor (former Bush OMB director, Mitch Daniels) has pushed through privatizing the administration of welfare eligibility services, creating quite a bit of sturm-und-drang. As did his privatization of our northern toll road.

The jury is still out on whether either of these will, in the long run, be good things.
posted by Thorzdad at 8:01 AM on November 25, 2007

Military on-base housing has been undergoing privatization since the late 90s. The initiative got a slow start but privatization is really taking off now. Most would say (I think) that it has been for the better - the housing was by and large in dire need of repair and renovation, and the privatization brought with it a huge investment of private sector dollars.

The private sector brought in all that capital in exchange for very long term leases/management contracts. DoD retains ownership of the land and there is still oversight by the DoD/base commander/etc. - so it's really a public-private partnership. Each service does the privatization a little differently - I believe the Army is the service that has privatized the most housing.

2003 article about privatization
posted by misskaz at 8:31 AM on November 25, 2007

Two years ago the Federal Government privatized Flight Service Stations to Lockheed Martin.

It's too early to tell if the service has improved or gotten worse... The National Air Traffic Controllers Association "Union" says it's gotten worse...

What essentially happened with this privatization or outsourcing is that many Federal Aviation Administration employees lost their jobs as Federal employees (and their pensions) when the switch to Lockheed Martin (a private company) happened; their job title didn't change but they are now employees for a private company...

What is ironic is that pay for them is higher than for newly-hired Federal Air Traffic Controllers that work in towers and enroute centers across the United States where the workload and responsibility is far beyond that of a Flight Service Station.

Further privatization of Federal Air Traffic services are possible and the controllers union is trying to get the word out to the flying public that it has not worked in other countries...
posted by MrBCID at 8:49 AM on November 25, 2007

Well, wrt to state governments, the DMV in my state opened up privatized "express" branches a couple years ago, and they've been a much more pleasant experience than the real DMV. Less people waiting, friendlier service staff, etc.
posted by pravit at 9:43 AM on November 25, 2007

As mentioned upthread, phone service in the U.S. (both local and long-distance) has always been provided privately. Until the early '80s, though, it was provided almost exclusively by the monopoly known as the Bell System (now AT&T). After "Ma Bell" was broken up into regional providers, it also paved the way for a wider array of long-distance carriers.
posted by scody at 10:06 AM on November 25, 2007

Detention of people arrested without citizenship documents. Worse than you can imagine. Google "Wackenhut."
posted by gum at 10:09 AM on November 25, 2007

Charter schools. Mixed bag: sometimes fantastically better, most of the time not obviously better, sometimes horribly worse, in almost all cases more expensive.

Jails. Almost always cheaper, almost always worse.

Savings and loan regulation. Destroyed the industry, cost the taxpayers a bundle.

Many types of inspection. Cheaper and we get what we pay for.

Commuter services -- buses and trains. Usually worse (less service), sometimes better in some ways.
posted by dhartung at 11:25 AM on November 25, 2007

Whitman privatized parts of the NJ DMV in 1995, turning it into a notorious hellhole. McGreevy returned control to the state in 2003 and people are still amazed at how smoothly things go now.
posted by djb at 12:39 PM on November 25, 2007

A little more on Medicare privatization: It began in the 90s as an experiment to encourage people to move into a managed-care type of arrangement (rather than the traditional fee-for-service arrangement typical for Medicare). The federal government subsidized a few test markets across the country, handing out contracts to private insurers who offered packages with enhanced benefits to Medicare recipients and the Medicare recipients would pay a small premium to enroll. The idea was that actively managing the care would improve health outcomes and letting the private industry administer the benefits would make it more cost effective.

Depending on who you believe, it's probably not working out so well. There is no doubt that the government is spending much, much more upfront to insure people in a managed care plan, although it is arguable that cost benefits may not be seen for a few more years. Also, the trend has been to shift more cost onto enrollees with higher premiums and out of pocket costs, so that will affect the total cost to the tax payers. From the enrollees standpoint, it probably isn't such a big deal because the people that are enrolling in these programs typically were buying Medicare supplements anyway. As far as health outcomes, the data that I have read suggest NO DIFFERENCE in morbidity or mortality. Unfortunately, none of this is slowing down anytime soon.
posted by Slarty Bartfast at 12:46 PM on November 25, 2007

Airport security prior to 9/11 was by private companies, and then it was taken over by the federal government because it was deemed to be poorly run.
posted by LobsterMitten at 3:28 PM on November 25, 2007

California didn't work out that well, but many economists argue that a large factor was that it wasn't fully deregulated.

And the implication that "full deregulation" would have worked out well for consumers is dead wrong. Think of it this way: can you stop using electricity if prices are too high? Then without regulation (at the very least) electricity providers would have you over a barrel. Would you like to be able to shop around for the electrons of your choice? Of course not. Electrons are identical. Questions of whether it makes sense to use electricity generated by coal or by wind should be made as a matter of public policy - not at the household level - because there's so much at stake for society as a whole.

What happened in California was that consumers were being regulated by the industry. "Full deregulation" (free-market apologists are never clear as to what this really means) would certainly differ in the details, but would be a catastrophe nonetheless.

So, using California's public utilities (LA, Anaheim, Burbank, Glendale, etc) as a control group, as dame notes, one can safely say that deregulation of electricity California was a failure (though not technically the same as privatization, as the companies in question were already private).
posted by univac at 4:24 PM on November 25, 2007

Foster care has been privatized to some extent in lots of different states, to varying degrees of success (a quick google search will send you to lots of articles on this). In my experience, as a public sector social worker, it's a mixed bag. Private agency staff tend to be paid much less than public staff (except for their upper managers, who tend to be paid a great deal more in private agencies than in public)-whether that salary disparity is good or bad depends on your perspective. I think there is more staff turnover, which is bad for kids. Private agencies can be more creative about finding home for kids, and can move much faster than a big state bureaucracy can. In my state, they only place children with lots of special needs, and they are pretty darn good at that. On the other hand, it comes at a cost: the state pays these private agencies about 6 grand a month per child (3 going on to the foster family), as opposed to the 2 grand or so we'd pay one of our own foster parents.

I think there's probably big differences in outcomes between states that privatize all foster care and states that privatize only some. It's the same phenomenon you see with improved outcomes in charter or private schools: when you can pick or choose which kids you serve, and not serve the tough ones, or stop serving them if you don't get more money, you look pretty good.
posted by purenitrous at 10:59 PM on November 25, 2007

The Fed's Office of Personnel Management (OPM) privatized during the Clinton administration. A few large companies comprised of many of the people who previously were with OPM rose up to replace it. Personally, working for one of them at the time, I think it got better for all parties.

OPM was essentially the org that did background investigations on personnel applying for high-security positions (airline pilots, nuke plant workers, some wall street firms, etc.).
posted by allkindsoftime at 12:23 AM on November 26, 2007

The California example: It is important in these matters to focus on the fact that there is no single mode of deregulation, there are different paradigns and if one is applied inappropriately then things won't work, basically, there is good regulation and bad regulation.

The idea of full regulation is also one that isn't really helpful, even the term deregulation is something of a misnomer, reregulation would probably be ore accurate in most cases, ie a shift from a regulated service provision to a regulated privately owned system. Even the most hardcore liberaliser isn't likely to sign up to strip all the regulations from, for example, electricity transmission, to do so would welcome monopoly and be obviously anticompetitive.

A key problem in regulation is the phenomenon allueded to be univac, what the industry calls 'regulatory capture' wherein the responsible regulatory body effectively is constrained from proper regulation in the interests of consumers by both or either, an initial regulatory paradigm which gives the private service provider too much power or which moves that way over time for one reason or another (often political).
posted by biffa at 2:42 AM on November 26, 2007