Filed Under: Anything Peaceful
Tags: Chicago • corruption • Mayor Daley • Politics • privatization
The Dark Side of Privatization
“If the parking meter deal put a bad taste in your mouth, try swallowing this: Chicago is considering leasing its water system to help fix the budget.” Privatization for efficiencies might be a good thing, but that’s not what this is about. Mayor Daley can’t stop paying off his cronies, so he’s selling off the city bit by bit rather than cut spending. Will we see similar deals at the Federal level soon?
There’s a dark side to privatization and Chicago has proof. Sometimes the private company buying up the utility is a political crony. And privatization hides operations of the utility where Freedom of Information Act requests do not apply. Governor Quinn uses his personal cell phone for state business. This is an example of micro-privatization that saves the state money (not much grant you) but it also makes his phone records a private matter that cannot be scrutinized by the public. In the case of the water department, which is know as the most political department, perhaps the city feels it can avoid patronage scandals if hiring decisions are no longer a public concern.I’m not saying all privatization is cynical … but when corrupt people privatize government services it tends to be for corrupt reasons. Keep in mind that the water department is one of the most corrupt of chicago’s many corrupt city agencies. I won’t cross my fingers for an open and transparent bidding process.
Comment by Jacob Steelman on 27 October 2009:
The concept of privatization is a great way to move government owned assets to the private sector. Unfortunately what the termed privatization tends to mean around the world is merely contracting with private firms to operate government owned enterprises which after a period of time are transferred back to the government for operation. For privatization to be successful the government assets must be sold and transferred to private owners who in turn assume the risks and are entitled to the rewards. Thus government assets become private assets. All too often the government engages in cronyism and corruption. I once represented a client in the privatization of a natural gas pipeline and control centre in Colombia during the late 1990s. My client has been in the natural gas business since 1910 (operating pipelines from coast to coast in America) but because we would not pay a 3% bribe to the brother-in-law of the Vice President of the state-owned energy company who was conducting the privatization we (and our partner who likewise has been in the energy business in South America for 50 years) were deemed not to have sufficient experience to operate
such a pipeline (they actually said that in making their award and denying my client the award).
Comment by Henry Clevering on 27 October 2009:
This post is as if you’re trying to find the “darkness in every cloud”. The kind of privatization you’re referring to is usually called “crony capitalism”, and yes, it’s not a good thing. But why focus on the negatives? The question is not about whether privatization has a dark side too. All human enterprises will since they are, well, human. The question is rather, “Would you like problems systematically corrected and fixed, or would you like your problems systematically institutionalized?” If you want them to be quickly corrected, then leave it to the private market, if you want problems institutionalized have the government take it over.
Comment by Mike on 27 October 2009:
Henry, I’m not so sure it’s that simple. Yes, perhaps I’m not sufficiently focused on the positive. But I think many times libertarians offer “privatization” as a simple solution and can’t understand why people don’t go for it. Well, it’s because so off “privatization” leads to “crony capitalism” as you say. So in order to convince people that privatization can work we have to (a) be sensitive to the fact that it won’t work everywhere all the time because the local political culture does matter and (b) offer advice for how to have successful privatizations even in corrupt political environment.
Comment by Ben Stafford on 27 October 2009:
From my personal experience working at a state-based thinktank, people usually don’t go for privatization for a couple reasons: 1) They only hear about it from government employees, that is, they only hear negative things about it, and 2) People generally have more trust in the public sector than in the private sector (the reasons for this are debatable but the fact still stands). In short, people usually aren’t applying critical thinking skills to such opinion making.
Comment by Jacob Steelman on 27 October 2009:
I have been involved in privatizations in South America, Europe and Asia. As I remarked in my earlier comment the problem is the assets are not permanently transferred to the private sector. The assets are at best leased and revert back to the state within some period of time. The state tends to view these as opportunities to get money and let the new owners clean up the mess created by state management and operations. Then before the term of the privatization expires the state moves to terminate the contract early and have the new cleaned up business revert back to the state. Since the new company must take steps that are politically sensitive such as laying off employees and raising prices to market levels those wanting to get the assets back to the state have a political issue which they can use. The monopoly power that the public company has is normally retained by the privatized company for at least some period of time perhaps 5-10 years or more depending on the business. The new owners may or may not be required to retain all employees so the responsibility to fire excess employees is either left with the state or the new employer. Ditto arrangements with suppliers. The most successful privatizations have been of telecommunications and the most difficult are those of energy.
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