Privatizing Social Services

In my first essay (Abolish Philanthropy) I explained why I am opposed to large-scale personal philanthropy. I focused on the anti-democratic nature of having a single person determining where the money should go.

I would now like to focus on another aspect of the defects in philanthropy, the outsourcing of what should be a function of society at large - social services.

The trend, especially in the US, over the past several decades is to shift traditional government functions to the "private sector". The usual argument is that because of competitive pressures the cost to the government by outsourcing will be less than if it did the function itself. As with most conservative dogma this makes no sense if one just looks at the basics and ignores all the sand being thrown into people's eyes.

A for-profit enterprise, by definition, has to make a profit, the government does not. So, all things being equal, the government should be able to do the job for between 15-30% less. What about the sand? The favorite argument is that government is inefficient. This is a conservative axiom which is never demonstrated by actual data. What one gets is some anecdotes about an outmoded department which consumes a few million dollars. Then there are the stories that are trotted out to show that after such and such clerical function was privatized the cost went down, despite the profit. How can this be? The usual answer is that the private firm pays its employees less. So what we have is that privatization means shifting public funds away from a broad group of modestly well paid public employees and into the hands of the owners of the enterprise while the rest of the employees end up with less.

In other words, privatization is yet another mechanism for shifting income away from the base and toward the top. A person like Ross Perot made the bulk of his money providing computer services to the Medicare system. The man who tried to build a political career by bashing government, made his fortune feeding on the government teat. Beware of privatizer wolves in sheep's clothing.

Lately the super wealthy class has started to develop a social conscience. The last time we saw such a movement was in the first Gilded Age when people like Carnegie and Rockefeller needed to burnish their terrible public image. Now a few people like Ted Turner have started to use peer pressure and shame to get some of the nouveau riche of the second Gilded Age to shift from oneupmanship over the size of their yacht or house to oneupmanship over how much money they can give away.

We now have a whole new class of enterprises, lumped under the name of "non-governmental organizations" (NGO's) which are devoted to providing social services using private sources of money. Those who support this effort say, "well if it wasn't for the NGO's the services wouldn't be provided at all". Exactly. We have outsourced necessary social services to a group of people who can pick and chose what to fund. As I mentioned before this is anti-democratic. The world has created many international organizations to coordinate social services, such as UNESCO. When these groups are functioning properly they balance the needs of many competing claimants and set priorities appropriately. Their funds come from governments, which means, ultimately, from us. It is our moral responsibility to support such efforts. Society should not have to depend upon the whims of a few wealthy people for essential social services.

The flow is simple to follow. The wealthy amass a fortune by gaming the system in some fashion. They either use quasi-monopoly powers to extract too high a profit for their product or they use political influence to extract money from the government via traditional outsourcing contracts. If a pop star is the wealthiest performer it's because there is only one of her and her fans are willing to pay for this natural monopoly, this is harmless and rare. Bill Gates is wealthy because he overcharged millions of customers for his wares. He used a variety of methods, but essentially they all boil down to variations of creating a monopoly.

We have all paid so Bill Gates can be Santa Claus. He gets to chose how the money (our money) is spent. This also sets up the idea in the public mind that it should be the norm that private individuals provide social services, not governments. This is not a healthy way for democratic societies to think. Once social services are (indirectly) privatized, and once routine government functions are outsourced, then everything else seems logical as well.

The results are already apparent. The current wars are being conducted, in part, by thousands of mercenaries and support personnel. There was a reason why soldiers ran the food service in the Army. A guy peeling potatoes can pick up his gun when required, a "contractor" from the Philippines can't. The soldier gets a minimal salary. So does the contracted worker, but the person managing the outsourced service becomes very wealthy. In the days when euphemisms hadn't taken over the news media these people were call war profiteers.

Even basic governmental functions like roads are being privatized. If the government can't raise enough money to fund road expansion and maintenance than there is something fundamentally wrong with the society. Governments, after all, can raise taxes and print money. They can also borrow more money that can private firms. If they can't then they are not viable. Sudan might have a problem raising capital, Texas, not so much. Even with the poor economic status of Sudan, a functioning international, intergovernmental system should be able to provide need capital for infrastructure. This should not be ceded to private firms with all the conflicts of goals which follow.

There was a time when road were private (toll roads) and when the poor had to appeal to private charity (poor houses), Dickens wrote about the evils of such times. Is this what we want to bring back?

There is time to fix this before it gets even further out of hand, but it will take several decades at a minimum. The first step is to alter the way wealth get concentrated. There are several options, this includes any combination of: higher marginal tax rates, strict enforcement of monopoly regulations, a wealth tax, or limits on government subsidies to firms which are not performing functions outside the scope of government capability. The libertarians and their wealthy backers will scream about taking away people's hard earned money, but they only get rich because of defects in the present system. I don't want to hear any of the other sand being thrown which says that creativity requires the profit motive. Some of the most important discoveries were made by people who earned little or nothing from their work. There are rewards beyond money for some. Even many traditional entrepreneurs will tell you that the reward was seeing their enterprise succeed, not amassing excessive wealth. Those who measure everything by wealth used to be called misers. Perhaps we should revive the word.

The second part of the program is to alter the way intergenerational transfers of wealth take place. The British managed to eliminate the unearned wealth of the landed gentry by imposing death duties. Over several decades this forced this class to dispose of much of their holdings and led to a dramatic decrease in wealth inequality and a burst of entrepreneurship as capital was released from land holding and put back into circulation. In the US, the campaign by the heirs of entrepreneurs to hold onto their inherited fortunes has been ongoing for several decades, but from both a moral and economic point of view they have no justification other than greed.

Democratic governments need to perform functions which benefit everyone (not necessarily equally) and this is best accomplished if the bulk of the resources get allocated via democratic processes. This means the citizens elect their representatives, who are entrusted with the responsibility of carrying out the wishes of those who elected them. To the extent that this doesn't work, then what we have is an imperfect democracy. The solution in this case is to strengthen those aspects which are not functioning properly, not abdicate to the whims of the winners who have best managed to game the system. What happens if the super wealthy decide that philanthropy is no longer the contest that they wish to engage in and pick on outdoing Louis XVI instead?

Moral: The solution to bad democracy is more democracy.

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Copyright © 2008 Robert D Feinman
Feel free to use the ideas, but the words are mine.