Privatize this! How we lost control of America's public goods — and how we can get it back

From prisons to running water to parking meters, privatization has mostly been a disaster. Time to change course

Published February 19, 2022 12:00PM (EST)

Running Water, Private Prison and Parking Meter (Photo illustration by Salon/Getty Images)
Running Water, Private Prison and Parking Meter (Photo illustration by Salon/Getty Images)

"The Privatization of Everything" is a book that sneaks up on you. Or at least it snuck up on me. Donald Cohen and Allen Mikaelian's subtitle should have prepared me: "How the Plunder of Public Goods Transformed America and How We Can Fight Back." I already knew some of the story. But I've never seen it told this way before, spanning such a vast range of examples and offering a compelling alternative vision based in the notion of public good.

The authors do this explicitly by organizing the book's chapters into sections that deal with broad categories of public goods, each with its distinctive pragmatic logic. For example, the section "Public Goods for Life" addresses the dangers of privatizing water, food safety and public health. There are also key thematic perspectives that make sense of the story, starting with the argument that the definition of public goods should belong to, well, the public, rather than being dictated by textbook neoclassical economics, or the simple observation that private companies have interests and incentives that don't necessarily align well with public needs, and can sometimes be entirely at odds. 

Slowly but surely, it dawned on me that the authors had articulated a sound, sensible and compelling vision about how realize the promise embedded in the preamble to the U.S. Constitution: "to promote the general welfare." That vision holds the promise of a pathway to rebuilding civic trust and a sense of common national purpose. That might seem to be wishful thinking, especially at this historical moment. But public goods are highly popular across the board, with Republicans as well as Democrats and independents, as demonstrated by the recent 342-92 vote for Postal Service reform in the House, with 120 Republicans voting yes. (All 92 no votes, mind you, were also from Republicans.)

I recently interviewed the book's lead author, Donald Cohen, asking him first about the broad principles mentioned above, and then about the specific public goods addressed in different sections of the book. 

This transcript has been edited for length and clarity.

Let's start with some of the basic, broad principles or perspectives in your book, starting with the idea that what's been privatized is the entire notion of public goods. You argue that they shouldn't be understood in terms that economists have used, as "non-excludable non-rival goods," but rather should be defined by the public itself. Why is that important?

The way I describe the classical textbook definition is simple. I use the example of the streetlight. You can't exclude someone from using it. The light's on the street, and if someone's using it to read a map another person can walk up and read it too. Under that definition, health care is a private good. you can exclude people, and we do, and of course there are only so many doctors and nurses and hospital beds. So if it's a private good, the market drives and the market rules. But if it's a public good, then we get to say that everyone should have it. We should be able to do that democratically and not let the neoclassical market definition of public goods define what we can do.

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You repeatedly make the point that privatization is more expensive, even when it appears cheaper upfront. This is glaringly obvious in one way, since private investors routinely expect double-digit returns while public bonds typically return around 4% a year. So can you talk about what to learn from that perspective? 

Absolutely. Businesses have legitimate business expenses, as well as pretty high executive compensation packages, in the millions, depending on the corporations. They have returns to investors, profit. They have political expenses, lobbying, and they also have debt, because they're involved in mergers and acquisitions, buying up other businesses. All of those are business expenses, none of which, fundamentally, is being spent on the service. If that's the case, then you have to look at the service or the thing being provided, and say, "OK, they say they can do it cheaper. But they're taking a bunch of money out." I ask one question all the time: "What are you going to spend less on?" 

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They say they're efficient, but efficiency is just spending less to get more. There's a finite list of things you can spend less on. You can have fewer workers, which they do. It happens in private prisons, they have higher ratios of prisoners to corrections officers. You could pay them less, lower wages and fewer benefits, which they do. You can use lower-quality equipment or supplies, that happens as well. And ultimately, you can give less service. When they privatized Medicaid in Iowa and Kansas, know what happened? Simple math. You got less care. So it's it's really a fallacy when they say "more efficient." There may be things you can do to make services more efficient, we should always strive to do that. But when they say "more efficient," really what they mean is they're going to spend less, and quite often that's very much counter to our interests. 

My next question is about the basic logic of who's being served with public versus private financing, where interests and incentives aren't well-aligned. That's perhaps clearest in your discussion of public-private partnerships, or P3s.

Yes, particularly involving infrastructure. The way you build stuff is design, build, finance, operate and maintain. That's how infrastructure is built. So, design/build is often private. When you bring in private finance capital, which is more expensive than public finance — often a lot more expensive — then the private financiers, usually along with the consortium, want to take control of the asset, do the operations and maintain it for decades. 

So several things are true there. One of which is they're paying more for capital. The second thing is, they say they'll do it cheaper and faster, and they often say "with no new taxes," when they're advocating for public-private partnership. But there's a real simple truth: Things cost money and there's only one place to get money. From us. If it's not a tax it's a toll, if it's not a tax it's a rate hike. There's no free lunch. There's no free money out there. So that's the first thing you have to put aside. It's going to cost money. The question is who's going to get it. 

I use the example of Chicago parking meters as the example on P3s. [Private investors, led by Morgan Stanley, paid the city of Chicago $1.16 billion for a 75-year operating contract in 2008. That had realized a $500 million profit as of 2019, with 64 years to go.] There are two things wrong with the deal. It was an incredibly stupid way to borrow money on your future revenues. But even if that was the only option, they got taken. They sold $1 billion too cheap.

But here's the real problem with P3s. If the city wants to eliminate parking spots, to get people out of cars with rapid transit or dedicated bus lanes or pedestrian street malls or by changing housing patterns — the responsibilities of a city — they have to buy the parking spots back. That's the core of what the problem is, because when [private entities] get control of the asset, they get control of the decisions that we ought to have. The city of Chicago's elected leaders — the city council, the mayor — their hands are tied if they want to expand transit. 

You anticipated my next question, which is about the issue of future flexibility, the loss of public capacity to respond to new challenges and opportunities. 

The problem with these contracts is that they're incredibly rigid and inflexible. Whether it's a 75-year deal for parking meters, or a three-year deal for prisons that often gets renewed, they're rigid. Why is there so much contract litigation in America? Because contracts are hard to do. It's hard to anticipate everything that could happen. There's always ambiguity in the terms, or people on different sides have different interpretations. So there's a rigidity that works against us, because the world is a changing place and we get locked into bad arrangements, as in the Chicago case. 

Another theme that recurs in your book is how public goals and private incentives are routinely at odds. Private prisons are a prime example.  How should we understand this problem, with that example and then more generally?

Private prison companies make money when there are people in prison. They're paid by per diems. Now, many of the state-level contracts that we looked at had guarantees in them — 80% or 90% guarantees, in Arizona it was 100%. Basically, keep the beds filled or pay for them anyway. So what's the product the private prison companies are selling? They sell heads in beds. So they're going to try to expand the market and expand their market share, and they have spent decades doing that. Things have changed a little bit because the politics have shifted, but they were a huge influence on strong crime legislation, three-strikes legislation here in California, and higher immigrant detention as well. SB 1070 in Arizona has their fingerprints all over it.  

As to the larger point, it's actually pretty simple. Businesses do one thing, they sell stuff. What do they care about? They care about how much they sell, the volume. They care about how much it costs to make. They care about returns, the difference between costs and revenue. And they care about market share. Those are their metrics, period. 

So, objectively, prison companies want people incarcerated. We don't. Water companies want to sell more water. If you look at the water companies filing statements to the SEC, they see conservation as a risk to their bottom line. For-profit colleges sell butts in seats. They want to sell as much as possible, spend as little as possible, and still provide the service. Again, they cut corners, and that is often not in our interest. Their incentives are just different. It's important to understand we have different interests, and they're not always aligned. Sometimes they're completely misaligned and counterproductive to what we want to do. It's crucially important to understand that. 

You go back repeatedly to American history, showing the deep roots of recognized public goods as well as the lessons we can learn from examples of privatization. What are the big lessons there? 

I think the first point is how things that we all need come to be. When the private sector built the railroads in Iowa, they were thinking about the market that existed at the time. They wanted to get the agricultural product to the coasts, so their interests determined that Iowa had east-west lines and no north-south lines. Had the public been in charge in deciding on an economic development strategy, they might have a grid so that there were more options later on. So the first is how it starts, and who has control. 

The other is: Do they invest in something that we need, but where they can't see a profit? There was the example of the New York water system, where at first, it was like, "OK, we don't see that we can make money. We the public realized, "We want everyone to have access to clean water." We think ahead about the economy and the society in a different way. The market does one thing: It looks to sell stuff. That prevents us from looking ahead comprehensively, because the market only sells to people and institutions with money to buy. The public's role is to make sure that everybody has the things they need, and we develop as a country together. 

After the introductory section, you write first about "public goods for life," the dangers of privatizing public health, water and food safety. Why are these public goods, and what harm results from failing to recognize them as such? 

Well, today you have to start with COVID, because it's all we think and talk about. It's consumed our last two years. Trump's first conservative, and probably corrupt, reaction was: Leave it to the market. States will go on the market and find the protective equipment and testing equipment, and that's how things should work. It was a miserable failure. We all recognized quickly — even that administration, when it created Operation Warp Speed — that you need government coordination. If there's one lesson for me from COVID, it should be clear that the health of all of us depends on the health of each of us. Again, the market only gets things to people who have the resources to buy them.  

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That's true of clean water: We need everyone to have access to clean water because it is in our interest. People need to be healthy. If you pay for it as a commodity, in a community like Flint or elsewhere, they simply can't afford to maintain and upgrade a system like that. So it's in our economic interest, in our social interest, it's in our political interest for everybody to be healthy. That's the important thing about public health, it's really got to be all. That's the only way. 

The next section is titled, "The Public Gets Us There," and is mostly about transportation and communication. Talk about the basic argument and the historical examples you use to illustrate it. 

I always think about this: What's the public good? I say it's mobility. We need to be able to move around. We need everyone to be able to move around for all sorts of reasons. That includes private enterprise and market actors who are making stuff, it includes all sort of things, airplanes — where they go, where they land. You can think of all sorts of reasons you want that mobility to be universalized in some fashion, and shared fairly and equitably. The market doesn't do that. So that's No. 1. 

The other thing is that things cost money. We cite the example of the the Indiana toll road. The private companies said, "We'll be able to run this road because we'll get cars on the road and we'll make the money back." It turned out that wasn't true, they went bankrupt. We don't get to not have the road, so we have to step in. For reasons I still can't comprehend, Mike Pence, who was governor at the time, decided to resell the road rather than take control of it. I can't put my head around that one. 

Then, on the flip side, we talk about Kansas City deciding to offer free transit. There's a recognition that mobility is something we all need. It's a good because we get people out of cars, we save the planet. We've made a decision on how to pay for that. We don't pay to use the road to get in our car and go to the grocery store. We've decided to pay that through taxes, and you could decide to do the same thing for transit. We decided to pay for it as a commodity, but there's no reason for that. It's down to this: Things cost money, it's always a question of where you get the money, and when you get the money.

In your next section you describe privatization's as a "slow coup" that is undermining democracy and justice. You cover various different examples, such as prison privatization and forced arbitration. What's the "public good" at stake in this section? 

Well, it's democracy. Meaning not just who votes, but who has control over the things that we ought to be able to have control over in our society. There's a few core ideas in that section. One can be stated as "skin in the game," and here's what I mean by that. Prison companies sell heads in beds. As a public company, they have a fiduciary responsibility to their shareholders. So if a government — a state government or local government or the federal government — does something that could influence their revenues, they have to be involved at some level. And what's their interest? To sell more. Once we embed their interests, through contracts and other schemes, they're in. We pay them and they use the money we pay them for the service to increase their political power.  

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The other thing, as I mentioned with Chicago, is that we're losing our ability to make decisions about things that matter. Forced arbitration — which we're seeing in our cell phone contracts and our employment contracts, because we all check the box, or because we want the job — that power is used to get workers and consumers to give away their rights in the legal system. And it's increasing. 

Your next section is about shredding the social safety net, and how that generates and worsens inequality. How do you define the public good in that context? 

I would say it's economic security. There's some level of economic security we should aspire to create for everyone. Because if people have some level of security, they'll do better in life and we'll do better. So we do that through the safety net. It gets to be a conversation about freedom. You're on your own to make it or not make it — and if you don't make it, it's your fault, too bad, right? But when I think about freedom, I don't know anybody who feels free if they're burdened by tens of thousands of dollars of student debt, or by no health care. So when we don't provide the safety net, we're basically saying people are on their own, and health care is expensive, college is expensive, child care — which I consider a fully privatized public good — is crazy expensive. So we're basically saying, "You're on your own," and then we know what happens. When the jobs don't pay well that feeds  inequality, when people don't have access to these things. 

Government has the power to change that, just through its own spending: $2 trillion is spent every year by governments in America on procuring contracts and goods and supplies. We can make sure those are good jobs, but often they're not. We're actually using our tax dollars to drive inequality, and we can flip that around. President Biden finally signed the executive order requiring a $15 minimum wage for federal contractors and there are living wage policies in Los Angeles and all across the country that require higher wages for subcontractors, That's a recognition that the government has a role in creating inequality or resolving it. 

The next section of your book seems to have a broader concept in mind: How privatization erodes community. Explain what you mean by that and what the core concern is. 

It's about democracy. We are consumers of public services, and there's an ethic and a value structure that we're citizens also — we have an obligation to do our part, to not do harm to others. If people don't interact, if there are no public places, then you don't have an opportunity to understand each other's perspective. So parks, schools and libraries — those are the places we interact and they're critically important. That sense of community is critically important, to develop the trust, appreciation and understanding that are essential for democracy. For me, it's the most important part of the book. We include the example of Social Security because it's an example of the community of the whole: We're all in it and therefore we protect it and we see our interests tied together. What we have to do is lift up and recognize that we actually are interdependent, we need each other to get through the world. 

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Then we get to a section about what you call the "corruption of public education." What's the central concern here?

First of all, when something goes from public to private, you lose access to information. Things go dark, and there are trade secrets and proprietary information. They say it's none of your business, that's how the private sector operates. The example I like to use that's illustrative is charter schools. The original idea of charter schools was a good one: Let's create laboratories of innovation, come up with new ways to teach kids, new methods and all that, but then share it open-source. It has become a market product now. Charter schools compete against public district schools for students and the money that comes with them. So in terms of the transparency piece here, the sharing part, charter companies don't share either. If they're competing, they don't want to share their secret sauce, their ideas, with others. So teachers hired in charter schools, in lots of cases, have to sign NDAs as a condition of employment, prohibiting them from sharing the school's "trade secrets." OK, what are the trade secrets? Lesson plans, curriculum, teaching methods — the very stuff that we need to share to benefit all students, because we need all students to be educated. And, by the way, we're paying for it all. 

Your next section is about the privatization of public science and research.

So knowledge is the public thing here. We should be sharing knowledge. We all need it. COVID is a good way to start, because part of what the Trump administration did was not just to leave it to the market. We paid for the vaccines: Moderna got a grant, Pfizer got a pre-buy guarantee, we paid for it. A lot of public science went into creating those vaccines — public basic science and public applied science, public scientists and public knowledge. And then, third, it's a public health crisis. We need everybody to get the vaccine.

Now, patents are important. When somebody invents something, they should be able to make their money back. But it's a contract between us and them: They make the money back, and then share the knowledge. We gave them the money in a public health crisis, but we also gave them the intellectual property. What's the impact of that? They're making a lot of money, but more importantly, we can have manufacturers around the world creating generics to get more shots in arms quicker. This is global, obviously — omicron came from South Africa. That's sort of a no-brainer. So giving a private company, the right of intellectual property and control of those vaccines is a crime. 

Another example is weather. All the data that is used for weather apps on your phone or Google or whatever, all of that is public, it comes from the National Weather Service. Private companies can take it and process it, package it in different ways. Some of it is useful, some is just bells and whistles, with no value. But the example in the book is about Accuweather, who sold their services to the Union Pacific Railroad. A tornado hits, and the trains do just fine because they had access, they were warned earlier than the National Weather Service could manage because of lack of resources. So the CEO says, "Our product worked! The trains stopped! Oh, sorry, the tornado went into a town and a number of people died — but the trains were fine, our product was fine. Our client was fine because they had the money to afford extra tracking and warning services." 

As you point out in the book, Accuweather was responsible for preventing the National Weather Service from creating a public app. 

Exactly. They don't want the competition. That happens in other sectors as well. They use their political power and influence to prevent the National Weather Service from making an app that we could all use. The same thing is true with public banking. The banking industry has prevented public banking, and the tax prep industry, Intuit and Turbotax and others, prevented the federal government from providing a free, easy-to-fill online alternative for millions of people, because they want people to buy Turbotax. They don't want the competition.

Your last part is called "Becoming Pro-Public: What to Do in Response." So what can we do about all this?

The first thing is on the level of ideas. Conservatives have been on a drumbeat for the last 40 years, attacking the idea of government, attacking the institution of government, exalting the free market: competition, the profit motive, private sector efficiency. I think we need to have a pro-public drumbeat that does two things. One of which is to debunk the idea that the private sector is always more efficient. That's not always true. Sometimes it is, sometimes not. But it's always about spending less money when it comes to public goods. And the profit motive has done some good things, but it also created the opioid crisis. I think we really have to push back on those ideas. And when they say competition is what solves problems way. Well, we saw what competition does with charter schools and public education, and it's not a good thing. 

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The other idea we have to push is about the public things that are all around us and the public purpose around them. The paint on our walls used to have lead in it. It doesn't anymore, because of public action, and laws and regulations that got passed. When you turn on the tap, water comes out. There are public things all around us. So we're not in an environment where everything is negative. Negative attitudes toward government are pervasive in all of us. But it's not all bad. What conservatives have done is say, "Oh we're the reformers. We've got an idea, let's just give it to the private sector." Our idea has to be, "No. The public purpose of these things is that everybody should have them. Let's improve it."  

At a more practical level, we have to assert control over our public goods. Water systems that were privatized are being in-sourced and re-municipalized around the country.  That's an action that should be taken in lots more places. We should allow the Weather Service to create an app. We should allow public banking. We should allow the IRS to create easy tax forms. We should unshackle the public sector. 

The government contracts for all sorts of things. Where it goes wrong is because hard questions aren't asked in advance before the decision is made to do it, before a contract is signed. And that's the crucial part: We need to demand of elected officials and administrators in the bureaucracy to ask those hard questions for today and for tomorrow. The parking meters in Chicago: There should have been a process to ask, "Will this in any way limit our ability to do to expand transit? How much will they make? And is that money we could use for other needs?" That's the most important thing: People demanding that we ask all those questions about those contracts.

Finally, what's the most important question I didn't ask? And what's the answer?

I don't know if it's the most important or not, but what you didn't ask is, "Where did this come from?" So I'll give you my answer. It comes from three places. It's mostly a who, not a what. 

First, it comes from the true believers, the libertarian conservative ideologues who really have a different view of what government should be. I like to use this Milton Friedman quote, and it wasn't from the 1950s, but more like the aughts: "In my ideal world, government would not be responsible for providing education any more than it is for providing food and clothing." That's what they believe. I was reading an article this morning about a legislator in Alabama who wants to basically dismantle the public education system, put it all in vouchers and the market. That's what they believe. 

Second, for corporations it's a pot of gold. There's $7 trillion to $9 trillion spent every year by governments in America. It's a pot of gold. When you're a big company and you see three quarters of a trillion dollars spent on education, or $150 billion spent on water or whatever it is, you go for it. So you fund the ideologues to create that pro-market, anti-government environment, and then you spend your political dollars, lobbying dollars and marketing dollars to get those contracts. It's happening all over. In the last 20 to 30 years, companies have gotten much better at doing that at the local and state level.  

And then finally there are the conservative politicos, political folks that want to destroy unions and downsize government, who see advantage in anti-government rhetoric and politics. They want to eliminate their opposition and perhaps help their friends. They may be true believers as well. But, you know Grover Norquist, he's a strategist. He's not going to make money from contracting. But he's a strategist who says "We need to get government small enough that we can drown it in the bathtub." So those are the three forces that have driven this since the 1970s. 

By Paul Rosenberg

Paul Rosenberg is a California-based writer/activist, senior editor for Random Lengths News, and a columnist for Al Jazeera English. Follow him on Twitter at @PaulHRosenberg.

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