Friday, June 22, 2012

Paul Krugman Gets It Absolutely Correct about Recent 'Privitizations'

Be very careful about talk from politicians about 'privitizations,' it hardly ever has anything to do with returning a sector to the free markets. Paul Krugman in a brilliant essay nails the scam and explains why it is expanding:
Over the past few days, The New York Times has published several terrifying reports about New Jersey’s system of halfway houses — privately run adjuncts to the regular system of prisons. The series is a model of investigative reporting, which everyone should read. But it should also be seen in context. The horrors described are part of a broader pattern in which essential functions of government are being both privatized and degraded.

First of all, about those halfway houses: In 2010, Chris Christie, the state’s governor — who has close personal ties to Community Education Centers, the largest operator of these facilities, and who once worked as a lobbyist for the firm — described the company’s operations as “representing the very best of the human spirit.” But The Times’s reports instead portray something closer to hell on earth — an understaffed, poorly run system, with a demoralized work force, from which the most dangerous individuals often escape to wreak havoc, while relatively mild offenders face terror and abuse at the hands of other inmates.

It’s a terrible story. But, as I said, you really need to see it in the broader context of a nationwide drive on the part of America’s right to privatize government functions, very much including the operation of prisons. What’s behind this drive?

You might be tempted to say that it reflects conservative belief in the magic of the marketplace, in the superiority of free-market competition over government planning. And that’s certainly the way right-wing politicians like to frame the issue.

But if you think about it even for a minute, you realize that the one thing the companies that make up the prison-industrial complex — companies like Community Education or the private-prison giant Corrections Corporation of America — are definitely not doing is competing in a free market. They are, instead, living off government contracts. There isn’t any market here, and there is, therefore, no reason to expect any magical gains in efficiency...

So what’s really behind the drive to privatize prisons, and just about everything else?

One answer is that privatization can serve as a stealth form of government borrowing, in which governments avoid recording upfront expenses (or even raise money by selling existing facilities) while raising their long-run costs in ways taxpayers can’t see. We hear a lot about the hidden debts that states have incurred in the form of pension liabilities; we don’t hear much about the hidden debts now being accumulated in the form of long-term contracts with private companies hired to operate prisons, schools and more.

Another answer is that privatization is a way of getting rid of public employees, who do have a habit of unionizing and tend to lean Democratic in any case.

But the main answer, surely, is to follow the money. Never mind what privatization does or doesn’t do to state budgets; think instead of what it does for both the campaign coffers and the personal finances of politicians and their friends. As more and more government functions get privatized, states become pay-to-play paradises, in which both political contributions and contracts for friends and relatives become a quid pro quo for getting government business. Are the corporations capturing the politicians, or the politicians capturing the corporations? Does it matter?

The point, then, is that you shouldn’t imagine that what The Times discovered about prison privatization in New Jersey is an isolated instance of bad behavior. It is, instead, almost surely a glimpse of a pervasive and growing reality, of a corrupt nexus of privatization and patronage...


  1. Agreeing with Paul Krugman takes some getting used to, but his observations about the prison-industrial complex and its system of crony capitalism are well-taken.

    Kudos to Robert for demonstrating one of the rarest qualities in modern political discourse - the clarity and self-confidence to acknowledge well-reasoned arguments of philosophical (or idealogical) adversaries.

  2. A very long-time ago I remember how the term "Public-Private Parterships" sounded so noble, so empowering! In reality, come to find out they were/are about the connected being given the transfer of special rights, and taxpayer/printed money. Time and again these PPP's seemed to go to those that had given politicians the most money, hired a relative, or a wink-nod to hire the elected official should they leave office(or political appointee, high-level bureaucrat in the exec. branch). Today it is happening in the Space Program (think co's like SpaceX); environmental auto boondoggles(think Tesla, Fiskar). And even TSA is getting smart, they may farm some functions out to private co's as a means to circumvent recent whithering publicity. Wonder which connected interests will get in on that gravy train? And the recent renewed push for giant infrastructure projects being pushed by the U.S. Chamber of Commerce, Unions, and the co's that will cash in, I won't even go there.

  3. Privatization is the wrong word to use. This is government outsourcing. Some would say a form of fascism.

  4. Krugman missed that CEC has at least two private equity owners, Primus Capital and LLR Partners.

  5. If only Krugman could take this lesson and apply it to other forms of government intervention - possibly deficit spending?

  6. My city in New Jersey is dominated by a public-private developement corporation that has been blighting functioning areas and building high rises left and right. Place is getting uglier by the month. Traffic is already brutal here at rush hour. Each new apartment building comes with a parking garage about the same size as the building itself. If these building actually fill, I wonder how much worse it can get.

  7. It must be rare for Krugman to be so intellectually honest. I wonder what pill he swallowed (or not.)

  8. I wonder, however, if he is able to recognize the benefits that a real free market could provide in these instances.