Don't Make the Public Private!

Of late, it seems as if political leaders are making public investment and its value in infrastructure extremely insignificant. As news continues to pour in about the privatization of Social Security, more legislation is built up to prevent single-payer health care, and now our elected officials aim to sell off our infrastructure as if it were not the public's in the first place (1). It is important to recognize that private procurement of public infrastructure or services is not necessarily a bad thing, but it is detrimental to the quality, effectiveness, and financial efficiency of these things, when there is a tremendous gap in economic laws that passively allow private owners to take advantage of the public, utilizing the same legal avenues by which they dodge taxes, ignore accountability, and just plain rip off the American taxpayers (11).

Wired magazine in February 2011 published an article entitled, The Village of Shadows, about a small Romanian city that was host to numerous technology-based con-artists. A particular shady character named Chita was mainly responsible for generating a large network of fraudulent businesses, in order to scheme people out of money. Chita was using a legitimate business to serve as a shell for fraudulent activities such as phishing attacks. Romanian authorities were quick to catch up with the scheme of his business, because he was purchasing big money items, without a justifiable source of income, and when the authorities (government officials) wanted to see his business records, Chita had none (2).

No records? How does one operate an effective an ethical business without records? This is not a comparison of how most privately owned businesses behave, but it is a signal to those who fail to understand that profit can be a dangerous thing, when it comes to the security and welfare of a state. When maximizing money is the main focus of a particular party, every other matter is secondary, if not irrelevant. The stability of government, and public infrastructure, that is meant to defend against a state collapse into chaos, is placed right into dire straits. Such a market already exists in the shadows, and the only thing that keeps the public from economic despair is that regulatory mechanisms are in place to route out any questionable practices.

Such is the state of affairs these days among the private corporate elite. How is Chita's business-related behavior any different than a "drug company mislead[ing] doctors about heart attack risks in order to sell more pills", "an insurance company manipulat[ing] its earnings by billions through complicated offshore reinsurance dealings", or a major bank "illegally charging minority borrowers higher loan rates or helping a dictator stash his ill-gotten gains" (10)? With the encroaching invasion of free market ideals, and the demand for the expansion of deregulation, fraud seeps into the cracks of companies, with private investors, that invest in corporations that are granted the same civil rights to privacy as the individual. Given this level of questionable, if not illegal, practice, it is evident that profit-driven business in a deregulated market could directly lead to a crime-ridden, dysfunctional, and destabilized public services infrastructure.

In contrast, government or public servants are accountable to the public, no matter the level of service being provided. The bureaucratic system cannot dodge the scrutiny of the public eye forever, as private interests practice everyday, avoiding the scrutiny of their questionable business practices. Private business on the other hand is accountable to only the customer, but this relationship is worlds different from the patronage of the public or the taxpayers, in that there is a certain level of openness when a service is publicly executed, whereas there is a tremendous potential for private contractors to conceal elements of quality, fraud, efficiency, and effective improvements (9). What type of public system would we have if questionable businessmen, like Chita, used the ownership of the Brooklyn Bridge as a means to defraud individuals?

When private business acquires public services for profit, this breeds a duality, in that the private interest is compelled to balance between profits and integrity of the provision of service. Instead of relying on weak legal contracts between the public and private parties, if a business were to acquire a public service, then it would be sensible to apply the same public laws by which public servants must abide. Therefore, profit is not secondary to improvement, but rather carries equal weight with quality and effectiveness of service. What this guarantees is that private businesses, that are granted the operation of public services, are required to provide proper customer service, and can no longer hide behind contract loopholes, and a lack of transparency. If a private business procures a public service it is no longer just a private business, but a public servant as well (9).

"Proponents have argued that when government is both the owner and the producer/deliverer of a service, it makes it difficult to monitor the activities of its agents – the bureaucracy – and that such problems can be overcome by engaging the private sector through legalistic contractual arrangements. The flaw in this argument lies in what some scholars have identified as a problem of incomplete contractual arrangements" (3). This is widely known as "asymmetric information" and has been the primary utility of private banks and investment firms that created faulty loan packages, that in turn were sold to investors for a profit, with the buyer making the assumption that the financial product was risk-free, when it was not. It is considered to be a characteristic of "one party [having] more or better information than the other" (4), and so it's not fraud, it's just taking advantage of the other party by withholding knowledge. Basically, a fraud of indifference, or better yet, purposeful negligence. If private interests, like those of investment firms and banks on Wall Street, that used a passive-aggressive mechanism to, for lack of a better word, lie about the financial products they were selling, how treacherous would that same business practice be, if these same types of companies were allowed to say they were maintaining public infrastructure, while the public taxpayer has no avenue to ensure that that information is correct? In the case of the government, the private contractor can supply a service, but by taking advantage of incomplete legal agreements, the servicing party can avoid providing quality assurance and not have to provide the public with absolute transparency.

Most people would assume that not all private institutions are capable of being intrinsically deviant, in order to avoid the liability of providing a more efficient service than government. These assumptions can be correct some of the time through a measure of corporate social responsibility, but it is important to remember that government that offers public services is intrinsically held accountable, and transparent, not because law requires it, but the representative bodies in place will ensure the security, stability, and sanctity of the public.

With business it's a entirely different story. Private industry is dedicated to its own "bottom line". There is this ever-present "incentive for the private sector to cut costs in order to maximize profit". So how does one company effectively cut costs so as to maximize profits? This is done through basic labor reduction, by "retrenchment" (diminishing the workforce), "employee cutbacks, lower wages, and the greater use of part-time labor", in order to eliminate the expense of paying full-time benefits (3). It's fairly safe to say that across the board the profit-driven private company is reducing its productive capacity. If that is done the quality either remains the same or has to decrease, due to a rotating schedule of cuts. In other words the private sector is only concerned with itself, and that concern has the same weight, if not more, as the concern for the preservation of the public society it is serving.

Reconsider corporate social responsibility (CSR)! In some economic circles it is considered a myth, in that a company that strives to meet its "bottom line", does so to the point that social welfare is ardently relinquished by corporations. Take for instance, the reformation prospects of the Canadian mining industry (12). The irony dispelled by the industry is rampant, and it stinks of a smattering of double standards put forth by corporation who dread having to face regulation. Canada's government wants to pass legislation to softly regulate the mining industry on a global scale, in order to ensure that the industry does not abuse the rights of the citizens directly effected by mining in their country. The mining companies on the other hand are reluctant to be regulated by law, but instead insist that they can apply voluntary social responsibility to their business model or practices.

So, in other words, companies that follow along this same logic, are willing to regulate themselves. That is absolute nonsense. Is it acceptable to believe that governed regulation is synonymous with voluntary responsibility? It would be safe to assume that this premise would never support social responsibility, because of the model of a conventional corporation. That is, a corporation will only consider the interests of the stakeholders, and not all individuals of a society are stakeholders. Even if some have the capacity to be a stakeholder, they are invested in various businesses, more often than none competing against one another (13). So, you have two separate elements of the corporation that fail to fit into the model of social responsibility: 1) there is a demographic of society that does not have the capacity to benefit from the interests of a corporation; and 2) the interests of competing corporation pitch the interests of individuals against one another. In fact, corporate social responsibility is actually negligence, and in order for a corporation to function it would need to indirectly go against the best interest of a society.

What is most interesting about political attempts to privatize public services is that there is this attitude that privatization is great as long as it lays off workers, and moves more business into the realm of private interests. It's as if the attitude lends itself to characterization of some tough, suck it up, indifferent directorate, whose responsibility is voluntarily limited to shutting down one system, and failing to preserve economic stability. By being accountable for the economic repercussions of producing such drastic changes to an economy, any policy executive would realize that such a sudden change in the economic landscape would be ruinous, especially if one of the effects of overhead costs would deplete the workforce, and therefore directly effect the individual's right to a sustainable life.

The Universal Declaration of Human Rights states, that "receiving a fair remuneration with which one can fulfill one's basic needs is an inalienable human right" (14). Now this is a guideline that corporations should follow, but in reality, the corporation's goal of maximizing profit is in conflict with minimal financial rights of the individual (because they must decrease wages, in order to lower the costs of production), and so corporate entities force themselves to not comply with the declaration. Deregulation, in a global free market, disables national governments from questioning or even enforcing that a corporation abides by the declaration or their own doctrine of voluntary social responsibility. Only so much policy can be drawn up in favor of CSR, but when it is voluntary, and not law, then it is not a matter of ensuring that corporations preserve human rights, it is whether or not the corporation as an element of society can compel itself to participate in the community as a responsible member, and not place the liabilities of profits before the priorities of human rights. Keep in mind, that this is the one policy that at least government of the United States has ensured.

Maybe, slashing overhead costs isn't the only problem, and when we consider the effects of profit-driven models, the lack of transparency adds more fuel to the profit-maximization fire. No matter which viewpoint you have, private industry's entitlement to not having to disclose its business secrets to the public, and possibly only to those who have vested financial interests (i.e. investors or shareholders), is another detrimental factor to supplying the public with quality services.

The public answers to itself, because it is placing revenue into a system that intrinsically belongs to itself. Just like a private interest would do to ensure its financial well-being. When public services are privatized, as long as their is a binding contract between the public and private parties, and that contract offers bounds that determine that the private party will provide superior services, there is intrinsically a gap. This gap is between the private entity's assurance of providing quality and efficient service, and the ability of the patrons to assess that quality and efficiency. In essence, the public, when it pays for a service should absolutely be aware of the value for which they are paying.

Works Cited:

1) Cities for Sale: Psst! Wanna buy the New Jersey Turnpike? http://www.slate.com/id/2288401/


2) Bhattacharjee, Yudhijit. "The Village of Shadows." Wired Feb. 2011: 82+. Print.


3) Ohemeng, Frank K., and John K. Grant. "When markets fail to deliver: An examination of the privatization and de-privatization of water and wastewater services delivery in Hamilton, Canada." Canadian Public Administration 51.3 (2008): 475-499. Academic Search Complete. EBSCO. Web. 6 Apr. 2011.


4) http://en.wikipedia.org/wiki/Information_asymmetry


5) Charter Schools Outsource Education to Management Firms, With Mixed Resultshttp://www.propublica.org/article/charter-schools-outsource-education-to-management-firms-with-mixed-results?utm_source=socmed&utm_medium=Twitter&utm_content=tweet4&utm_campaign=Charters


6) "Rudy's way." Economist 330.7849 (1994): 26. Academic Search Complete. EBSCO. Web. 13 Apr. 2011.


7) Walsh, Mark. "New York City Votes Are a Blow to Edison." Education Week 20.30 (2001): 5. Academic Search Complete. EBSCO. Web. 13 Apr. 2011.


8) "The odd couple." Economist 333.7893 (1994): 24-25. Academic Search Complete. EBSCO. Web. 13 Apr. 2011.


9) Bovis, Christopher. "The Effects of the Principles of Transparency and Accountability on Public Procurement and Public-Private Partnerships Regulation." European Public Private Partnership Law Review 4.1 (2009): 7-25. Academic Search Complete. EBSCO. Web. 17 Apr. 2011.


10) Nader, Ralph. "How to Curb Corporate Power." Nation 281.11 (2005): 20-24. Academic Search Complete. EBSCO. Web. 19 Apr. 2011.


11) Risen, Clay. "Accounts Due." New Republic 230.11 (2004): 16-18. Academic Search Complete. EBSCO. Web. 19 Apr. 2011.


12) LAPIANTE, J. P., and CATHERINE NOLIN. "Snake Oil and the Myth of Corporate Social Responsibility." Canadian Dimension 45.1 (2011): 24-27. Academic Search Complete. EBSCO. Web. 19 Apr. 2011. 


13) Uccello, Cynthia. "Social Interest and Social Responsibility in Contemporary Corporate Environments." Journal of Individual Psychology 65.4 (2009): 412-419. Academic Search Complete. EBSCO. Web. 20 Apr. 2011. 


14) Rabet, Delphine. "Human Rights and Globalization: The Myth of Corporate Social Responsibility?." Journal of Alternative Perspectives in the Social Sciences 1.2 (2009): 463-475. Academic Search Complete. EBSCO. Web. 21 Apr. 2011.