Why Privatization Is Worse Than You Know
A conversation with Donald Cohen about why we need more government--and a less free market
It’s rare that I get to read a really good book about political economy that is also enjoyable, lucid, and full of good stories. Today was one of those opportunities. In 2022, I’ll be featuring more author interviews, mostly published on Fridays for paid subscribers. But I wanted to give recent free subscribers a taste of this content too. Interviews are fun for me—but they are also time-consuming and expensive, and I would love it if you could support that work for only a few dollars a month.
When activist and organizer Donald Cohen sat down with journalist Allen Mikaelian to write The Privatization of Everything: How the Plunder of Public Goods Transformed America and How We Can Fight Back (New Press, 2021), the United States was still years away from the most urgent public health crisis since the global flu epidemic that began in 1918. But public health has not been the only sector where handing what Cohen and Mikaelian call “public goods” over to private, for-profit entities has eroded basic services that Americans need to thrive as a nation. In the following conversation, Cohen explains the bigger picture.
Claire Potter: Donald, would you start by telling us how you came to this topic?
Donald Cohen: So, I've been an organizer and an advocate for many years. I've also believed in public goods and the role of government for many years and have studied the conservative attack on government and its consequences. I was involved in the labor movement in San Diego, where we saw several major privatization efforts. Now, I run an organization called In the Public Interest that focuses on fighting privatization, understanding how private interests get control over government, and advocating for how we can deliver robust, high quality, responsive public goods.
CP: Donald, what do you mean by “privatization” and “public goods”?
DC: Many people think privatization only means contracting for a prison or selling off a water system, but my definition is broader: private control of, and power over, public goods. By public goods, I mean things that we all depend on, essential services. So that includes prisons, but it also includes roads, public health, and clean air--all the things that we need to survive and thrive.
CP: What about parking meters—why are they important?
DC: In 2009, in a terrible economic time, the city of Chicago made a terrible decision to lease their 36,000 parking meters to a consortium: Morgan Stanley, a sovereign wealth fund from the Middle East and a national parking company. The consortium offered $1.1 billion for 75 years.
It’s a cautionary tale that illustrates the central issues and problems when we hand our public things over to private corporations. The deal was an incredibly stupid thing to do, to borrow on future parking meter revenues for 75 years. Worse, the interest of the private entities that control those parking meters must be protected throughout the life of the contract. If the city wants to eliminate parking spots temporarily for a street fair, or more importantly, permanently to deal with climate with dedicated bus or bike lanes or street malls that close off entire blocks, they must purchase the parking spots back at their future value.
CP: It sounds like government officials are just naive. Is that true?
DC: I haven't used the word naïve, but governments do get taken. There is a massive imbalance in financial and legal expertise between a global finance company or a national corporation, and the government agencies they negotiate with. Also, people who run governments have a lot of problems to solve. If you're a mayor, and someone comes to you and says, "Cheaper, better, faster, problem off your desk," it’s tempting. It’s very hard work to think forward about the fiscal impact, the financial impact, the service impact, of these deals.
CP: So, we have corporations with access to ideas, expertise, legal talent, and investment capital. What happened to all the human and the financial resources that government should have access to?
DC: Over the last 50, 60 years marginal tax rates and public revenue declined dramatically. Tax cutting has been a central, bipartisan political objective everywhere. In California, Proposition 13 that created property tax caps decimated our higher education system, our public education system, and other things. Colorado, Massachusetts and other states have their own versions of this.
Anti-tax politics have submerged a basic fact: things cost money. But in addition to revenue, we also need clarity about why public goods are important. Everyone needs to be healthy. Everyone needs to have a good education, and yes, you must pay for those things.
CP: But anti-taxers say, "People should take care of themselves. It's good for their character."
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DC: Well, people should take care of themselves. But having said that, COVID has underlined a basic fact: the health of all of us depends on the health of each of us. But health care in America, even when it is a public program, is unequal. Different states have different Medicaid benefits.
When you move a service to the market, the market excludes. But the only way for us to create a healthy nation is to make sure everybody's healthy. The only way for us to clean the air and solve climate change is for all of us, collectively, as individuals, as businesses, as government, doing things together. Government is the instrument for making this happen.
But it's also important to understand that the market is made up of real people, institutions, and companies. Private companies sell things, right? Oil companies sell gasoline and everything else that comes from the extraction and production of oil. Apple sells iPhones. They care about sales volume, production, distribution, market share and profit. Do private entities sell things to people who don't have money? No. When hospitals are private, rural hospitals close because there's no money there. If markets exclude because that's what they do, the public needs to include.
Also, the private sector doesn't share information with competitors. Take privatized education, in the form of charter schools. Charter schools were supposed to be innovative laboratories, sharing new ideas about how to teach that could benefit all schools. But in today’s market model, schools compete against one another, and they don't share. Teachers who work for charter schools must often sign nondisclosure agreements that protect the charter school’s trade secrets: lesson plans, curriculum, teaching methods and ideas. That works exactly against what we want to happen in education.
Markets are legit things. Public goods are legit things. But markets are the wrong instrument for delivering what should be universally accessible public goods.
CP: Yet proponents of privatization argue that corporations can provide all public services in a thriftier, more efficient, way.
DC: Thriftier, or more efficient, only means you spend less. But what are you going to spend less on? There aren’t infinite possibilities. In a school, you could spend less on wages and benefits. That means fewer administrative staff and putting more administrative burdens on fewer teachers. You could have more kids in a class: that’s the same thing as fewer teachers.
And remember many charter schools are nonprofit because there are laws and states that they must be, but that doesn’t mean no one is making a profit. Many of them hire for-profits to run the school. When a for-profit is involved, money is extracted for return on investment, and to much higher executive compensation and marketing packages. That’s money that could, and should, be used for teaching.
There’s a structural level too: the growth of charters creates a parallel education system, and that’s the goal. When kids go from a public school to a privatized school, state money goes with them. But all the costs of running schools they left don’t.
Charters claim to be using competition to improve public education, but they are bleeding funds from a public good. There are even charter schools created by real estate developers to attract folks to their gated communities. They raise some private money and create a Cadillac public school that is predominantly white, while a nearby public school that is predominantly Black is being bled. There's no net improvement to education, and it increases class and racial stratification.
CP: You also argue that the Covid-19 crisis has exposed our nation’s addiction to market-style economics, and that diminishing public goods made it impossible for us to cope with the pandemic.
DC: Right: Donald Trump's first reaction—after “it doesn't exist”—was: "The market will take care of this." What did everybody need from the market? We needed personal protective equipment (PPE), COVID tests, and other medical supplies.
What did that look like? New York was a good example, since we know it was competing against Massachusetts on the medical supplies market, but the market wasn't ready to deliver in an unfolding crisis. And so, we had shortages and the private market was price-gouging. We lost time and lives because of that.
Then there was Operation Warp Speed. The government created a level of coordination that was helpful. And we needed the drug companies because the federal government wasn't in position to produce vaccines.
But the question is: where did the science to produce Covid-19 vaccines come from? The technology to sequence the genome was a result of a massive public, government investment in the 1990s, the human genome project. That's how we found the vaccine so quickly, and that's how we're finding the variants so quickly. Then came a second, massive public investment: Moderna was given a grant, Pfizer a prebuy order.
But here’s where another, and unnecessary, level of privatization emerged. We also gave those companies the patents. Now they needed to make their money back. Sure. That's what patents are for. But we also could have made sure that after that, the patents were free and accessible so that generics could be created, more manufacturing could happen quickly, and other countries could produce the vaccine quickly. This is a global crisis. And we needed global public control over the intellectual property.
CP: You seem to suggest that the public and the private have become utterly confused. I remember that Trump was asked to release the federal stockpile, and he said, "No. We're not going to give it to you because it belongs to us."
DC: He also could have used that defense production act to ask major companies to retool immediately and produce PPE. This is clearly a public health crisis, one that we are still living through, and what failed in that instance was giving too much power to the market.
CP: When we look at our current national crisis, are there these hedge fund guys and finance bros saying, "Oh my God, a big juicy pandemic! Boy, are we going to profit from this!"
DC: Listen, they're human beings, but when there's money to be made, that's what companies do. If they're a public company and they're not doing it, their shareholders will complain because their job is to generate returns and dividends and capital gains. For private prisons that means heads in beds, for drug companies, drugs in our bodies and shots in our arms.
And there is so much money to be made. Before the pandemic, governments in America spent $7 trillion a year, and now it’s more. Say you are the head of Morgan Stanley or a national parking company, or anything that could provide public services. If you are not thinking about how to get a piece of that $7 trillion, you're not doing your job.
But the interests of the public are different. Here’s another example: colleges and universities are now outsourcing some of their dorms. They build new dorms in public-private partnerships, granting long-term leases for operations and maintenance. There's a company called Corvias that's doing this.
When the pandemic happened, dorms shut down. Universities started to bring students back slowly, but not at full occupancy for obvious public health reasons. So, two universities that I know of, Georgia State and Wayne State, got a legal letter from the company that said: "The university does not have the unilateral right under the agreement to institute a policy that would limit the number of students in the dorm."
That's what we mean when we say power over public health is affected by a contract to the private sector.
CP: Right. So, what's the relationship between privatization, austerity, and neoliberalism?
DC: Austerity means that governments don't have enough money to do the things that they're responsible for, and that citizens want them to do. I consider austerity to be a form of privatization because if there is a public good that we should all have, and there are no public resources to provide it for everybody, some are left at the mercy of the market.
That creates an opportunity for private companies to sell stuff, but also for private interests to influence a public service. For example, universities have been drained of resources for years, and are all looking for donations. Folks like the Koch brothers take advantage of that to extend their influence and power. They give large contributions to universities across the country, and they have demands. They want oversight on who gets hired and whether their views are consistent with the Koch brothers view of the world.
Neoliberalism is the underlying condition that permits this to happen. It’s a philosophy that says: let the market run, and let the market fail, but don’t rely on government to serve the public.
Obviously, I don't agree with that. There are market things and there are public things and they're just different. Certain public things, like Covid-19 testing? If they can be delivered by private companies, okay. But it must be available to all. A public good like testing must be publicly controlled, publicly resourced, and everybody gets it.
The thing that is important to remember when we use the word “public” is that it means “all.”
CP: I know when you write a book like this, one that exposes a terrible problem, editors are always saying, “Could you end it on a hopeful note?” So, what can we do about this as citizens?
DC: One thing to remember is there’s a long game here. Conservatives and corporations have spent 40 or 50 years attacking the idea and the institution of government. But some governments are rejecting privatization. For example, municipalities across the country have reclaimed privatized water systems. I think that’s important to recognize.
What can citizens do? Citizens need to be part of things: engaging in politics is how we make change. We have to lift up public values again. Yes, we’re in a very anti-government political environment. But government is all around us, and it’s not all bad. You turn on the faucet, the water comes out. The paint on our walls used to have lead in it, and it doesn’t anymore because of government regulatory action. So, we need to surface the state around us. We also need to see that we are deeply connected, because right now we don’t feel connected to each other, and we don’t feel connected to the state. We must rediscover interdependence.
CP: Right now, I feel like conservatives are doing better than liberals at organizing. When so many people show up at a school board meeting, incredibly misinformed, but clear that they’re right about critical race theory, you know some organizer is doing a good job. Why isn’t the left able to produce a similar commitment to change in the aftermath of the 2020 election?
DC: I think there’s passion from the left on many issues. But the problem is that we’re not clear that we must defend government, as an idea and—when it does well—as an institution.
We can’t be silent on the importance of government as an institution. I believe that at times, the left inadvertently helps the right turn people away from government because there’s always something we want to fix. Organizers must promote clarity that we need government in our lives, it must be good, and we need to work together to make that happen.
Government is too important to the project of equality to not defend it, even as we continually improve it so it lives up the possibility of a country that works for all of us. Government touches our lives in so many ways, from public health to education, the production of knowledge, how we interact as a community, parks and libraries, food safety--a lot of things that we all rely upon.
And the larger issue that ties those things together is our collective ability to make decisions about what we believe the public needs to survive and thrive, what things we should guarantee for all.
The market won’t do that, but democracy does.
What is wrong with Donald Trump? He has cancelled his ill-conceived television event on January 6, the first anniversary of the insurrection he inspired, and perhaps planned. “In recent days, according to people familiar with the matter, it became clear that Mr. Trump’s news conference would not likely receive the kind of blanket cable coverage that he generally desires,” Shane Goldmacher of the New York Times reports, “and some advisers urged the former president to reschedule for a day that would draw less attention to a low point of his presidency.” One wonders if some of those advisers are lawyers. (January 4, 2022)
Shortly after the Russian Revolution the young Soviet Union passed a package of laws designed to create social and legal equality between men and women: one was legal abortion. Stalin re-criminalized abortion in the 1936. But unlike Texas, as Wendy Z. Goldman writes in the Los Angeles Times, “outlawing abortion was accompanied by a vast expansion in child-care centers, maternity clinics, food supplements for children and stipends for mothers. Every employer was obligated to provide four months of paid maternity leave and provide pregnant women with lighter work at their former pay grade. Oh yeah:and women kept having abortions. (January 4, 2022)
Keep your eye on Arizona: after the Republican legislature passed a $2 billion tax cut, activists filed a referendum to reverse the new law and restore the lost funding. “Tax cut opponents contend underfunded Arizona schools and social programs need the cash more than the wealthy,” writes Bob Christie of the Arizona Capitol Times. “They had to file more than 118,000 valid signatures to block the tax cut law and place it on the November 2022 ballot. The Secretary of State’s office said that after its reviews and those by county officials an estimated 163,000 were valid. It was certified in November and could be on the ballot as Proposition 307 in November 2022.” Republicans, perhaps fearing that the referendum will bring progressives to the polls, are now talking about repealing their own bill. (January 3, 2022)
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