Labor Party exposes privatization scam ... No, the private sector doesn't do it better

Labor Party exposes privatization scam ...No, the private sector doesn't do it better
October 1998

Ken Blaylock of the American Federation of Government Employees says he first saw it creeping in around 1976. Privatization--the contracting out of government work to private companies--started on a small scale. Back then, he says, it was the housekeeping and janitorial jobs that got farmed out to private companies. Many union members weren't too worried. They figured their jobs were safe.

No more. Now, says Blaylock, "At every hospital, military base, and HUD office--not to mention the Department of Defense--subcontractors do a major portion of our work. They've got everyone from doctors to food service staff to people who do missile maintenance. They've even got contractors whose job is to write specifications for contractors!"

In years past, Democrats defended public workers against privatization. But today's Democrats are leading the privatization charge. "The era of big government is over," Bill Clinton declared over and over on his way to the presidency. That's one campaign pledge the Democrat has fulfilled: Since he took office, the federal government has shrunk by over 300,000 jobs.

In fact, boasted Vice President Al Gore a while back, "The government workforce as a percentage of the civilian workforce is now smaller than it has been since 1933." Gore can claim much of the credit as head of the "Reinventing Government" initiative the administration launched back in 1993.

"Over the past seventeen years, federal agencies have been run by political appointees who have been more open to contracting out and privatization than all of their predecessors combined," AFGE president Bobby Harnage told a Senate subcommittee recently. "The profound contempt of most Reagan-Bush administration political appointees for the public sector was matched only by their deep reverence towards the private sector. And Clinton administration officials political appointees are even more pro-privatization, having consistently racked up the biggest service contracting bills of all time." The federal government, says AFGE, now spends $120 billion a year on private contractors--more than its $108 billion payroll for regular employees.

Privatization is a huge phenomenon at the state, county, and local level too, of course. Nationally, some 73 percent of local governments now use private janitorial services and 54 percent use private garbage collectors-- up from 52 percent and 30 percent respectively, a decade ago. Across the country, governments are privatizing everything from prison administration to welfare programs. Now Congress is considering legislation that would open up a wide new swath of government jobs to privatization.

Fueling the privatization frenzy are those old, familiar mantras: "The private sector is more efficient than the public sector." "The private sector can get the work done more cheaply." "Government is full of corruption and waste." And even, "Government workers are lazy."

While no one can deny the existence of red tape in government agencies, none of these arguments bear up under scrutiny. The U.S. government's own General Accounting Office (GAO) has repeatedly found that privatization is not what it's cracked up to be.

And yet, notes Blaylock, "The majority of members of Congress choose to ignore the evidence. Why? Because the lobby is so strong from the Chamber of Commerce and the business community and the military contractors. And they all put big bucks into congressional campaigns--both the Democrats and the Republicans."

It's no money-saver
Private industry gets the job done more cheaply, right? The city of Albany, New York, thought so. It decided it could save money and improve service if it contracted out the maintenance work on its city vehicles. But according to an analysis by the Economic Policy Institute, it didn't work out that way. The study concluded that Albany actually ended up paying 20 percent more to get its vehicles serviced than it would had it paid its own workers to do the job.

EPI notes that "the tasks that make up the bulk of public service are often more complex than privatization advocates maintain, and the complexity translates into extra costs to administer the contracting process, monitor work, and evaluate performance. These can easily outweigh savings from lower production costs."

Back in 1994, the federal Office of Management and Budget had to admit to a similar finding. The agency reported that the Departments of Agriculture; Health and Human Services; Housing and Urban Development; State; Education; and Treasury, along with the Environmental Protection Agency, would have saved millions of dollars by performing functions directly rather than having them performed by contractors. But they were forced to use contractors because of caps on hiring full-time regular employees. (That's Al Gore reinventing government" again.)

Ken Blaylock says that in his experience, contractors "often low-ball in on a bid. But the way the contracts are written, they can add in all kinds of costs. And within a year or two, they can sometimes cost as much as three times more than it would cost to do the job in-house."

Paying for profit and perks
It's not just that contractors have higher administrative costs. They have to squeeze a decent profit out of the job as well. After all, that's what private companies are all about--even if the work they're doing is for the public. And so every year, U.S. taxpayers are making direct payouts to insure the profitability of some of the world's biggest corporations. And we're also paying to insure that top company executives can continue to live in the style to which they've become accustomed. Last year, the Clinton administration proposed raising the cap on our payments to contracting executives to a luxurious $4 million a year. The administration thought that was a reasonable compromise, since the executives were lobbying for complete removal of any cap. In the end Congress upped the cap from $250,000 to $340,000. And then there are those little perks that have to get paid for somehow. Among the charges the GAO uncovered in one quick sampling of bills submitted by eight federal contractors: Six of the eight contractors charged in excess of $25,000 to the government for booze. Others asked taxpayers to cover their sports tickets, schooner rentals, running shoes, cable TV, and golf outings. Surprisingly, some of the dollars we pay to contractors go to cover higher average wages. In fact, the U.S. government pays its workers 23 percent less than private workers, on average. Supposedly, the pay gap between federal and private workers was to have been closed by the year 2003. But President Clinton has repeatedly invoked a national "economic emergency" to hold down federal wage increases.

Lots of fraud
The record of government contractors is a litany of botched jobs, fraud, cost overruns and mismanagement. When the GAO looked at companies that contract with Medicare to provide medical services, it found that "instances of scams, abuses, and fraud abound." And "to maximize profits, providers continue to exploit loopholes and billing control weaknesses," the GAO reported.

The Department of Energy, which diverts more of its budget to private contractors (like General Electric and Martin Marietta) than any other agency, has a wretched record. GAO found that "extensive latitude" to DOE contractors is losing us $15 billion a year.

It was DOE that made many people aware of how dangerous private contractors can be: the Rocky Flats Nuclear Facility, where DOE contracted with Rockwell International, is famous for the radioactive mess created by underregulated, undertrained contractors. The Oil, Chemical and Atomic Workers Union has amassed piles of evidence that contracting out work at industrial facilities has led to many terrible accidents, putting workers and whole communities at risk.

Losing control
Turning over government services to companies that have their own private agenda--profit-making--isn't just a financial and management disaster, public workers argue. It tramples on our democratic rights. "You see, in a democracy, the people have some control of their government--if they choose to exercise that control," says Blaylock. "But once your privatize that government function, it is then driven by profit. To me, this is very dangerous. In a society, people form a government for the common good--and that means services that we want our government to perform and be responsible for."

Blaylock cites the example of the Department of Defense. "It's pretty accepted in this country that one of the functions of the federal government is to provide for the common defense. But once you turn over to the private sector the research, development, maintenance, operations of weapons, the decisions about how weapons will be used and deployed--then those decisions become profit-driven. It has absolutely nothing to do with concern about the defense of this country. It's how many systems can we build, can we sell, can we pay for with tax dollars? How much profit can we pull out of this? And I think people lose sight of the democratic purpose of government, the accountability of government to the people."

In fact, some of the red tape we complain about is the result of hard fought battles by workers and environmentalists to ensure that government is accountable to the people it serves.

Our misery is their gain
Putting unaccountable profit-seekers in charge of social services is an especially bad idea, argues the American Federation of State, County, and Municipal Employees. And yet in recent years, state and local governments have been privatizing every imaginable human service, from job training of welfare recipients to Medicaid claims processing. It is the government's duty, AFSCME points out, to "assure equal access to services needed by clients who often are society's most vulnerable members." Can a profit--making company really guarantee fair and equitable treatment to everyone? Ensure the confidentiality of clients? Are they going to use the information they collect to make better informed policy? Should the information collected at a child welfare agency really be in the hands of a private company whose aim is to turn a profit?

Last year, the state of Kansas sought private bidders to run its foster care system. Contractors receive a fixed fee for placing children in foster care and then in a permanent home. But, reports that Wall Street Journal, now child welfare workers are worried that "outside contractors will cut corners to protect their bottom line rather than serve troubled children."

AFSCME policy analyst Cecilia Perry notes that "the one function in social service that hasn't been privatized till now is the role of gatekeeper in programs like Food Stamps and Medicaid--that is, the people who determine your eligibility. But not TANF [Clinton's new welfare law] is turning that over to private companies where the bottom line is profit. These companies have a motive for turning people away."

Trading good jobs for bad
Of course, one reason privatization has so much appeal for corporate-supported politicians is that it is a direct assault on organized labor. Less than 10 percent of private sector workers are unionized, while over 37 percent of public workers have unions. Good government jobs--permanent, unionized, with benefits--are the economic bedrock of many communities. By contracting this work out to non-union private companies, we are only undermining ourselves.

Those of us in the 50 states are a long way from matching the anti-privatization firestorm in Puerto Rico, where workers--with support from church, women's and civic organizations--staged a general strike to stop a consortium led by GTE from taking over their public phone company.

But with so much of our government up for sale, resistance is beginning to build. In Lake County, Florida, for instance, residents fought off an effort to turn their public fire department over to a private ambulance company. "If the privatization of the fire department is good, why don't we privatize the sheriff? Or the county commission? Or the tax collector?" asked the leader of an association of mobile home owners that opposed the plan. Eventually the opposition got so fierce that the company that had bid for the job withdrew. The fire department stayed public.

But ultimately, this is bigger than any local battle. If we're going to snatch our public dollars back from private companies, we have to build a political alternative to the privatizers--from Newt Gingrich to Al Gore.

Reprinted with permission from The Labor Party Press, official publication of the Labor Party, September 1998. Subscriptions to the Labor Party Press are included in annual dues to the Labor Party. To join the Labor Party, send $20 to P.O. Box 53177, Washington, DC 20009. For more information on the Labor Party, call 202 234-5190.