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Privatization of Public Services: A Way to Cut Costs and Improve Performance, or a Fast Track Surefire Formula for Failure?

February 28, 2011

As I learn more about the political economy and history of privatization, it becomes clear that proponents of privatization have some things in common with folks who assert that prayer or exorcism will cure homosexuality. By this I mean that neither group can distinguish between utterly preposterous wishful thinking and reality. In a word, they’re delusional. Another thing these groups have in common is that their delusions are disastrous for innocent bystanders.

The recent decision by the Corporation of Chennai (ironically, “corporation” in this instance means “the government”) to terminate the contract of Neel Metal Fanalca, a private firm, to manage solid waste in several parts of Chennai is one more indictment of the privatization of public services. How many such calamities must taxpayers endure before the advocates of privatization concede that privatization does not deliver either the efficiency or the low costs promised?

Undoubtedly, privatization’s proponents (a.k.a. economic hit men) will spin the Neel Metal Fanalca episode as evidence of the wondrous accountability of self-correcting free market forces. Rather than acknowledging that this is one more train wreck in privatization’s disastrous track record, privatization’s proponents will argue that the termination of NMF’s contract proves that privatization is a way to make service providers responsive to public scrutiny. Proponents of privatization will fail to recognize that this has been an extremely costly waste of taxes, and, more importantly, that this boondoggle has squandered several precious years on a wild goose chase for cheap services. In an era of rapid urbanization, climate change, fossil fuel depletion, and sharply increasing garbage production, we can’t afford to waste any more time indulging people who fantasize that solid waste management can be done by the private sector cheaply.

The delusional illogic of the case for privatization is clear in the World Bank’s toolkit, Guidance Pack: Private Sector Participation in Municipal Solid Waste Management. The toolkit makes several bizarre assurances:

  • public officials who have failed to manage garbage will miraculously be able to effectively design, negotiate and vigilantly monitor complex contracts
  • localities that can’t afford to manage garbage themselves will miraculously be able to afford to hire for-profit companies to perform such work
  • the public will save money by contracting out work to the private sector because such contractors will invest and spend their own money to create infrastructure and perform the work
  • despite centuries of failure, privatization will work

Such assurances are laughable to everyone who isn’t paid hundreds of dollars per day to propagate such nonsense. Have privatization’s proponents guzzled so much Kool-Aid that they actually believe their own sales pitch?

The public would be much better served by listening carefully to the conclusion of Elliott Sclar, an economist at Columbia University. Sclar’s book on privatization, You Don’t Always Get What You Pay For: The Economics of Privatization, concludes, “public contracting continues to be a cumbersome and expensive instrument for delivery of public service.” Sclar calls privatization, “a problematic course at best.”

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