US Policy Changes Vol.29 (Deregulation Vol.4 – privatization)

Here is an academic article on privatization. Excerpt is on our own.

The Meaning of Privatization | Paul Starr [Yale Law and Policy Review 6 (1988); Privatization and the Welfare State]
Privatization… emerges from the countermovement against the growth of government in the West and represents the most serious conservative effort of our time to formulate a positive alternative. … I hope to explain why I generally oppose privatization, even though I favor some specific proposals that privatization covers. …

I. Privatization as an Idea
A. The Public-Private Distinction and the Concept of Privatization
… Many things seem to be public and private at the same time in varying degrees or in different ways. …quasi-public…semi-private… Public is to private as the transparent is to the opaque, as the announced is to the concealed. …
…when we speak of public opinion, public health, or the public interest, we mean the opinion, health, or interest of the whole of the people as opposed to that of a part, whether a class or an individual. Public in this sense often means “common,” not necessarily governmental. …a “public act” is one that carries official status, even if it is secret and therefore not public in the sense of being openly visible. …
… To an economist, the marketplace is quintessentially private. But to a sociologist or anthropologist concerned with culture, the marketplace is quintessentially public–a sphere open to utter strangers who nonetheless are able to understand the same rules and gestures in what may be a highly ritualized process of exchange. …
…conceptions of the public sphere…open and visible…that which applies to the whole people…the domain circumscribed by the state…
…a second meaning of privatization: a shift of individual involvements from the whole to the part–that is, from public action to private concerns…
…an appropriation by an individual or a particular group of some good formerly available to the entire public or community. …
…in the patrimonial state public and private roles were mixed and in the modern state these roles are more clearly distinguished…
In liberal democratic thought… First, the concept of a public government implies an elaborate structure of rules limiting the exercise of state power. … Second, when the members of a liberal society think of their homes, businesses, churches, and myriad other forms of association as lying in a private sphere, they are claiming limits to the power of that democratic state. …
… As public agencies, cities were allowed only such powers as states delegated to them; as fictive individuals, private corporations came to enjoy rights protected by the Constitution. …
… On the one hand, private interests reach into the conduct of the state and its agencies; on the other, the state reaches across the public-private boundary to regulate private contracts and the conduct of private corporations and other associations. …
… An American public school is public, not only in that it is state owned and financed, but also because it is open to all children of eligible age in its area. … public television or radio in the United States is more dependent on private financing, less subject to control by political authorities, and less the symbolic voice of the state than the state-owned networks of other Western nations…

B. The Political Meaning of Privatization
… With the rise of conservative governments in Great Britain, the United States, and France, privatization has come primarily to mean two things: (I) any shift of activities or functions from the state to the private sector; and, more specifically, (2) any shift of the production of goods and services from public to private. … The second, more specific definition of privatization excludes deregulation and spending cuts except when they result in a shift from public to private in the production of goods and services. …
… First, the public sector here includes agencies administered as part of the state and organizations owned by it…
Second… shifts from the public to the private sector, not shifts within sectors. …
Third… not only from a deliberate government action, such as a sale of assets, but also from the choices of individuals or firms that a government is unwilling or unable to satisfy or control. …demand-driven privatization….
Fourth, if one shifts attention from the sphere of production to the sphere of consumption, one may alternatively define privatization as the substitution of private goods for public goods. …
… Strictly speaking, public transportation is not a public good, since exclusion is possible and only one person at a time can sit in a seat; however, because buses and trains are open to the public at large, common carriers are a distinctively public form of consumption compared to private cars. …
First, the cessation of public programs and disengagement of government from specific kinds of responsibilities represent an implicit form of privatization. … Second… the explicit form of transfers of public assets to private ownership, through sale… Third… the government may finance private services… Finally… the deregulation of entry into activities previously treated as public monopolies.
… The spectrum of alternatives runs from total privatization (as in government disengagement from some policy domain) to partial privatization (as in contracting-out or vouchers). …
… Often governments sell some voting stock in an enterprise but refuse to surrender control. …little more than a revenue-raising measure, as there may be no change in management…
… Entry deregulation of public monopolies is a form of privatization that is also liberalizing. However, it is entirely possible to privatize without liberalizing. When the Thatcher government sold shares of British Telecom and British Gas, it substituted private monopolies for public ones and introduced new regulatory agencies… Conversely, it is also possible to liberalize without privatizing–that is, to introduce competition into the public sector without transferring ownership. For example, governments may allocate funds to schools according to student enrollments where families are free to choose among competing public schools…
…first, the personal…informal sector, thought to exemplify the virtues of self-reliance, mutual aid, and sensitivity to individual preferences; second, the voluntary nonprofit…sector, consisting of formal, complex organizations, thought to display the same virtues as the informal sector, plus…; third, the small-business sector, acclaimed for entrepreneurship…; and fourth, the large-scale corporate sector, where hopes for improved performance rest not only on the profit motive but also on professional management and economies of scale. …

II. Privatization as Theory and Rhetoric
… By far the most influential is the vision grounded in laissez-faire individualism and free-market economics that promises greater efficiency, a smaller government, and more individual choice if only we expand the domain of property rights and market forces. … A Second vision… a more socially minded conservative tradition, promises a return of power to communities through a greater reliance in social provision on families… a third… a political strategy for diverting demands away from the state…
A. The Economic Theory of Privatization
1. Economic Model 1: Privatization as a Reassignment of Property Rights.
… Both attempt to enlarge the conventional economic paradigm by treating the classical firm and modern package of property rights as only one of various possible institutional forms. …
As developed by economists such as Armen Alchian, Ronald Coase, and Harold Demsetz, the theory of property rights explains differences in organizational behavior solely on the basis of the individual incentives created by the structure of property rights. …
… Since “shareholders” (citizens) have no transferable property rights in public enterprise, they cannot sell stock as a signal of dissatisfaction with performance; even moving to another jurisdiction is costly. Moreover, there is no “market for corporate control”: public enterprises cannot be taken over by bidders who believe that they can make more efficient use of the assets. …
… First, the theory holds that the form of ownership is the predominant explanation for the varying performance of different organizations. …
Second… the market as the standard for judging value and finds public institutions deficient because they fail to measure up to that standard…
Third… the market for corporate control is highly efficient and that the chief reason corporations are acquired is their management’s poor performance.
“Public choice,”…both a branch of microeconomics and an ideologically-laden view of democratic politics. Analysts of the school apply the logic of microeconomics to politics and generally find that whereas self-interest leads to benign results in the marketplace, it produces nothing but pathology in political decisions. …
…the public choice school makes a series of empirical claims: (1) that democratic polities have inherent tendencies toward government growth and excessive budgets; (2) that expenditure growth is due to self-interested coalitions of voters, politicians, and bureaucrats; and (3) that public enterprises necessarily perform less efficiently than private enterprises.
First, while the theory presents voters as narrowly self-interested, considerable evidence suggests that, even on economic issues, voters identify their interests with the overall performance of the economy, rather than simply voting in line with their private experience. …the evidence does not show an accelerating increase as a proportion of national income.
…federally owned rangeland is in better condition than nonfederal rangeland. …”tragedy of the commons”…
…public choice theory claims to face up to the self-interested basis of democratic politics and therefore treats all claims of higher purpose as smoke and deception. …a scientific advance over earlier romantic and idealized views of the state. But rather than being an advance of science over intuition, the appeal of the public choice school is precisely to those who are intuitively certain that whatever government does, the private sector can do better.
2. Economic Model 2. Privatization as a Relocation of Economic Functions.
… Of course, the overwhelming consensus is that private ownership is more efficient in providing private goods in competitive markets… Mainstream views do vary, however, about the proper role of public institutions in producing public goods and managing natural monopolies. Viewing competition as the critical issue, the neoclassically trained are inclined to favor privatization insofar as it represents a move toward competition under conditions when markets should be expected to work efficiently. However, in recent years the requirements for efficient markets have come to be understood more liberally, while the reputation of public enterprise has markedly declined…
…two recent developments have suggested more caution about public intervention. First, markets need not be perfectly competitive to perform efficiently; they only need to be contestable… Second, public choice theory has successfully raised the challenge that where markets fail, so, too, may government… …”nonmarket failure.”
…for if states and markets have peculiar weaknesses, perhaps philanthropy can be explained as an attempt to fill the void. …in the United States nonprofits are the “preferred” mechanism for delivering public services and that government programs arise to meet the problems of “voluntary failure.”…
… The various sectors provide alternative environments, and the problem is to decide whether a particular set of tasks is best carried out in one or more locations. …the most serious defect of this approach is that, like all the economic models, it is principally concerned with efficiency…

B. Privatization as Community Empowerment
… Peter Berger and Richard Neuhaus propose that government “empower” voluntary associations, community organizations, churches, self-help groups, and other less formal “mediating” institutions that lie between individuals and society’s “alienating megastructures.”…
… Salamon points out that the twentieth-century expansion of social spending in the United states has been largely a growth of what he calls “third-party” government (the third parties including local government as well as private nonprofit agencies). … Community empowerment might be a good idea, but if it is to come at all, it will come from more government intervention, not from privatization.

C. Privatization as a Reduction of Government Overload
… First, the privatization of enterprises is a privatization of employment relations. …
Second, the advocates of privatization hope also for a privatization of beneficiaries’ claims. …
Third, the privatization of public assets and enterprises is also a privatization of wealth. …
… The predictions concern the probable effects of privatization on political consciousness and action; the normative judgments concern the desirability of weakening the political foundations of public provision. … However, some forms of privatization may, indeed, change the underlying political values…

III. Privatization as a Political Practice
A. The Political Contexts and Uses of Privatization
… The more dependent a nation is on foreign investment, the greater the likelihood that privatization will raise the prospect of diminished sovereignty and excite the passions of nationalism. …
… The conflict between privatization and national interests depends on the relative power of a given state in the world system–the weaker the state, the more likely the conflict. …
… When a country’s bureaucratic and entrepreneurial classes differ in ethnic composition, privatization may be understood as a transfer of wealth and power from one group to another and be politically resisted for that reason. …
… The potential private owners of public assets and contractors for public services represent specific interests and groups. Privatization is unlikely to be carried out with indifference to those social facts.
… Governments that are in a hurry to sell state-owned enterprises may make concessions to current managers, whose cooperation is instrumental in divestiture. Privatization then becomes an occasion for managerial enrichment and entrenchment. …privatization usually brings about little or no change in top management…
…because privatization attracts support not only from economists with a disinterested belief in liberalized markets but also from a privatization lobby consisting of investment banking firms…
… Privatization is a worldwide policy movement carried along by a combination of objective forces, imitative processes, and international financial sponsorship. Many countries whose public sectors expanded sharply in recent decades now find themselves confronted by rising debt and strong resistance to higher taxes. …
… Even where state enterprises are generally agreed to be highly inefficient, it is not necessarily clear that privatization will be a remedy. …
The property rights approach predicts politically imposed inefficiency on the basis of public ownership alone, but the variety of public sectors and state-owned enterprises in the world suggests instead that performance may be contingent on political culture, the structure of the state, and public policy toward enterprises. … A great array of institutional devices, such as independent governing boards with self-perpetuating membership and earmarked financing, can serve to insulate public organizations from political intervention. …
… Where the state is the only domestic institution capable of sustaining the confidence of foreign creditors or administering large undertakings and where it has demonstrated management competence, the case for state enterprise may be correspondingly strong. On the other hand…
… The sphere of public ownership in the United States has been so limited that I find implausible the view that Americans suffer from an oppressive government role in the production of goods and services. …
… So deeply entrenched are the barriers to unitary control that legitimate interests in coordinated management are thwarted. American public institutions at all levels of government suffer from rampant credentialism and proceduralism that hamper the ability of managers to hire and fire…
…government cannot be run “just like a business” in part because its more elaborate procedures are meant to produce something else besides the specific services that the private sector provides. … Privatization is a legitimate tool for sharpening the focus of government on those activities most important to the general welfare, but it is never simply efficiency that is at stake in such decisions.

B. Privatization as a Reordering of Claims
… The theory of property rights… misses the special claims of the public sphere in a democratic society–claims for greater disclosure of information, which should improve the social capacity to make choices, and for rights of participation and discussion, which permit the discovery and formation of preferences that are more consistent with long-term societal interests. …
… the conversion of a publicly budgeted health service, covering only a minority of employed workers, into a voucher system covering the whole population; and the empowerment of local nonprofit, grassroots organizations with funds stripped from elite-dominated central bureaucracies…
In practice, however, a progressive effect on income distribution seems highly improbable. …
Privatization is not only a policy; it is also a signal about the competence and desirability of public provision. …
Some individual proposals for privatization have considerable merit, but the overall message is clearly to call into doubt the nation’s capacity and need for collective provision. …
… To alter the public-private balance is to change the distribution of material and symbolic resources influencing the shape of political life. Privatization ought to be frankly recognized as part of an effort of conservatives to reinforce their own power position. …as we move public provision into the private sector, we move from the realm of the open and visible into a domain that is more closed to scrutiny and access. …

cf.
Privatization and Deregulation: A Push Too Far? (PDF) | @WorldBank
Trump advisers back deregulation, privatized Social Security (11/12/2016) | JEFF HORWITZ @AP