Privatization: heads they win, tails we lose.

Alas, all I can think about is the global economy and its serious problems while sitting here.1 In addition to the most obvious issues of corrupted Chinese growth, debated US stagnation, and possible European disintegration, there are some lesser known problems which demonstrate to me the problems inherent in financial capitalism. This accepted set of international institutions, structures and underlying assumptions about how the economy functions have turned the world into a very scary place.

You know something is bound to go wrong when the assumption that every single person is a rational actor is made. Reality also firmly stands in the way of the belief that companies will obviously, without fail, do a better job for less money than governments do once they have competition in a market place. The laws of economics say so therefore it must be true… except in the case of the real world. Yes folks, I’m thinking of the ultra-exciting topic of privatization.2

Privatization basically entails a transfer of functions from the public sector to the private sector – what was done by governments will be done by companies. There has been a long (and sometimes questionable) history of privatization in western countries, from the provision of roads to hospitals to schools. Success stories do exist, for example the postal delivery system in the US, but there is no shortage of favouritism, corruption, subsidies and delayed consequences. The laws of economics essentially dictate privatization should occur across all sectors regardless of whether or not certain sectors impact basic societal welfare. The theory is great. I support the theory in its quest for a better system, but communism in theory is great too. What often happens in execution is that governments award private contracts for its functions (including essential services with guaranteed customers and incomes). Once a contract is signed, there will be no more competition. Companies care about profit, money, profit and profit. Whatever profits are derived is shifted to the private sector and benefits to society are not of any concern for the company since it has no short-term dollar impact.

There must be all sorts of procedures involved for awarding government contracts, but the decision is ultimately made by a person, an elected person who will run for office again, who may have worked for the contract-seeking company and whose interests are definitely not the same as those who elected him3

Political private practice by Gail Collins offers a good account of the basics of privatization in the US. Both parties favour it, there’s lot of debate over it, and one initiative in New York cost $700 million instead of $63 million. The city saved an astounding -$637 million!4 Though Paul Krugman’s viewpoints are sometimes debatable, he too criticizes some recent efforts to privatize New Jersey’s prisons. Whatever made the governor think it was a good idea? Ah yes, he used to lobby for Community Education Centers, the largest operator of halfway houses which replaced a number of prison functions. It seems no one told him overworked and underpaid employees aren’t likely to run after dangerous escaped criminals.

Often times, comments on an article offer more insight than the article itself, and I encourage you to read comments from both articles as some people describe their personal experiences with privatization. Here is one response to Krugman’s article:

“Federal employees swear an oath to uphold the constitution of the United States, while private employees are required to uphold the profit margin of the company.”

As if that wasn’t bad enough, there are more ‘benefits‘ from this current political economic system. Kuwait is now the second most obese country on the planet, according to London analysis of WHO data, partially thanks to imported fast food joints. 88% of their population have a body-mass-index of above 25, while the ideal range is 18.5 to 25. This is why stomach stapling is a booming business there. There is demand after all, so what’s wrong with a few (thousand) extra stapled stomachs? The black market for strawberries in Sweden is another side effect of all the profits to be made. Your neighbours clearly haven’t adapted if they’re suffering from imported strawberries. Who cares where the money is going because why spend more when you can spend less? Oh yes, ‘benefits‘ alright.

Aside from badly done privatization, so many problems with society today are summed up in the spoken word song “Underwear Goes Inside the Pants” by Lazyboy. The song is from 2004 but it could have been made last week and all the issues will still be relevant. That’s how much (US) society has changed. You can find the lyrics here and the song came to me highly recommended.

Do you know what the number one health risk in America is?
Obesity. They say we’re in the middle of an obesity epidemic.
An epidemic like it is polio. Like we’ll be telling our grand kids about it one day.
The Great Obesity Epidemic of 2004.
“How’d you get through it grandpa?”
“Oh, it was horrible Johnny, there was cheesecake and pork chops everywhere.”…We’re in one of the richest countries in the world,
but the minimum wage is lower than it was thirty five years ago.
There are homeless people everywhere.
This homeless guy asked me for money the other day.
I was about to give it to him and then I thought he was going to use it on drugs or alcohol.
And then I thought, that’s what I’m going to use it on.
Why am I judging this poor bastard.

After lunch, everyone went back to work as I sat outside staring at the grey Beijing sky behind a little bit of greenery. My plan was to stay still and wait for an epiphany, but the world kept being too depressing. This morning I had read about EA’s hiring spree, starting with Shanghai’s Microsoft staff and seriously spent time debating whether or not to apply for a position in the gaming company. It’s an old debate with myself, whether or not to read the news and stay in the world of IR/IPE since it is so depressing. But if Starry Night from dominos can be painstakingly created, then maybe change for the current international economic structure is possible. OR. Or, I could work in digital media and live my carefree days in imagination. Birds, plants, zombies…

1 Obviously, I’m a very cool person.
2 Some call is ‘piratization’ or ‘profitization’. For me, both are accurate.
3 Him or her. But I’m trying to be realistic, right?
4 “Saved -$637 million” = “wasted $637 million”