The Truth about Privatization

Over the last several decades, nearly every public service and public asset has been considered as a possible candidate for privatization. From hospitals, to social services, and from prisons to utilities, public officials have sought short-term budget relief by turning over operations to for-profit companies at an alarming pace and often with disastrous consequences.

Stories of the high costs of privatization come from all sectors. For example, In 2008 when city officials in Chicago signed a 75-year lease for the city’s parking meters, rates skyrocketed and the city found itself paying hefty fines when it needed to close the streets for a festival or road renovation. Similarly, around the nation, the privatization of prison services has been acknowledged as a widespread failure, not only leading to increased costs, but also creating perverse incentives to keep rates of imprisonment high.¹ This trend can also be seen in places where municipalities have privatized utilities like water and the result has been significantly higher household costs.²

So why then does privatization so consistently fail to live up to its promise? First, governments often fail to accurately determine the full costs of privatization. This includes not calculating the costs associated with contact administration and monitoring, conducting inaccurate cost-benefit analyses and being frequently subjected to cost overruns and change charges.³

Second, the privatization of public services generally involves the creation of a long-term relationship with an outside service provider. The vast majority of these contacts are multi-year, with many lasting for multiple decades. This means that if the services are substandard, there is little competitive access for other providers. The result is that service quality and cost saving are in fact removed from a competitive marketplace.

Finally, it is important to keep in mind that privatization is promoted primarily by a powerful antiunion coalition. One of their primary concerns is not just shrinking the size and responsibilities of government, but of undermining public sector unions – the most powerful corner of the US labor movement.

In the wake of several decades of costly privatization efforts however, we are beginning to see some examples of this trend moving in the opposite direction. One promising way in which this occurs is though a process of remunicipalization. Remunicipalization is the transfer of privatized public services from private companies back to municipal (or state or national)
authorities, and it is happening all over the world.

The majority of the remunicipalization efforts that have occurred thus far have focused on water services. From Bolivia, to India, to the US, grassroots movements have been successfully protesting and pushing private water companies out of cities. Municipal governments have become allies in these efforts based on their first-hand experience of the consequences of introducing a profit motive into water production: promised improvements never materialize, services are cut off to the poor, and private owners resist systemwide planning efforts. Fundamentally, the public interest in having clean, safe water for the long-term appears to be at odds with the profit-making interests of private companies. Fortunately, studies of the remunicipalization of water systems have found that those negative consequences of privatization can be reversed: remunicipalized systems provide more equitable, transparent, efficient, and less expensive services than the private sector did.4

Remunicipalisation is not just for water, though. Public services as diverse as energy supply, waste and waste water disposal, public transit, green space maintenance, rescue services and street lighting have all be remunicipalized in Germany alone.5

Efforts to bring such services back under public control have not been easy. Private companies fight hard to renew their contracts, often threatening to significantly overcharge municipalities to repurchase the necessary infrastructure, or even threatening to sue the community. Some companies seek to quietly extend their contracts as soon as they get wind of any growing public interest to remunicipalize. Despite these challenges, remunicipalization is taking place on every continent across the world. The prevalence of remunicipalization debunks the myth that privatization is irreversible and shows us that we can reclaim our public resources and public services

Notes:

1 In the Public interest. Criminal: How Lockup Quotas and Low-Crime Taxes Guarantee Profits for Private Prison Companies.
Washington, DC: Author 2013. http://www.inthepublicinterest.org/wp-content/uploads/Criminal-Lockup-Qu... [1]
2 Food and Water Watch. Questions & Answers: A Cost Comparison of Public and Private Water Utility Operation.
Washington DC: Author 2009. http://www.foodandwaterwatch.org/sites/default/files/qa_public_private_w... [2]
3 In the Public interest. Backgrounder Brief: The High Costs of Privitization. Washington, DC: Author 2011.
http://www.inthepublicinterest.org/wp-content/uploads/High-Costs-of-Priv... [3]
4 David A. McDonald, “Chapter 1: Remunicipalisation works!” from Remunicipalisation: Putting Water Back into Public Hands, 2012.
5 Susanne Halmer and Barbara Hauenschild, “Remunicipalisation of public services in the EU,” 2014.