Privatization and voucher systems: Why they are dangerous

Mitt Romney’s choice for vice presidential running mate, Rep. Paul D. Ryan of Wisconsin, is a champion for privatization and voucher systems, which boosts dependency on insurance companies, lines the deep pockets of investors, and in the case of education and other traditionally public service programs, compromises their durability and effectiveness. In the case of public education vouchers draw money away from low-income areas and add another layer to income inequality in this country.

Voucher systems are the calling card for the Republican Party, and by romanticizing it with words like “choice” they can lure some into believing they are being empowered; in fact, the believers willingly become the pawns of stock market investors together with the shared risk and no safety net. Insurance companies operate on a “for profit” basis and do not have any stake in securing the health of the nation or cutting costs in a way that does not compromise the health of individuals. They decide who lives and dies based on a business plan.

Privatization and historical context

It’s fair to find out if privatization has worked in the past before eliminating it from the political economic calculus. Actually, privatization has been around since the 19th century in public services and “outsourcing” of government services is not unusual. This method is supposed to introduce competition into the delivery of public services.

According to Moshe Adler of Columbia University, “There is only one problem with these ideas: measures to make outsourcing competitive already litter the history of private-sector provision of public services and all have failed. If there is a lesson, it is that the incentives for a public servant who hires a contractor are inherently different from the incentives for a private entrepreneur who hires a contractor. The entrepreneur is interested in performance and nothing else. The public servant may trade performance for a personal gain. In the end, governments have proved to be the most efficient when their services are produced by public employees rather than private contractors.”

The problem lies in the contract system that once signed, sealed and delivered leaves the government without the initiative to change or enforce. When street cleaning in New York City was privatized in the 19th century, the contractor was not meeting the contract requirements. What could be simpler than putting a contract out to bid through a competitive bidding process, making a choice and dismissing them if they failed? Enter politics. When the New York City Council was confronted with contract failures, the councilmen after “mature reflection” decided to “compromise.” The issue was, as it is many times today, councilmen relied on contractors for political contributions and, occasionally, for bribes. The city streets in New York were reportedly still in bad condition as late as 1860.

The relationship between politicians and contractors, whether it was street cleaners in the 19th Century or insurance companies, military contractors or oil companies in the 2lst century, is one where the system of relying on campaign donations from those whom government officials are suppose to be regulating prevents honest negotiation and adherence to contracts and agreements.

An example of privatization in the 20th and 21st century is exemplified in prison systems. The problems are monumental, including poor management, decreased or substandard inmate services, and filtering for low-cost inmates while sending the others to state run prisons, according to Richard A. Oppel, Jr. (May 18, 2011). "Private Prisons Found to Offer Little in Savings". New York Times.

Privatization contributes to the deterioration of public institutions and their services. Why? They operate on a for-profit basis, and in the case of prisons they shift the cost of higher maintenance prisoners back to the states, which does not save the taxpayer money. In Medicare, undervaluing the cost of health insurance shifts the burden to the taxpayers.

Moreover, privatizing Medicare would create a similar race to the bargain basement of health insurance providers with a voucher which, according to reports, will not cover the total cost of insurance and leaves the tax payer with picking up the slack. The most likely scenario is individuals will choose the cheapest insurance which only covers minimum benefits without yearly and preventative services that have the added value of early detection and intervention, when assessed in aggregate is one of the most important cost saving devices in health care.

Conclusion

The stark ideological differences between President Obama and soon-to-be Republican nominees Romney and Ryan ticket have actually made choosing between them at lot easier. It’s difficult to imagine Romney moving very far to the center to capture moderates with Ryan’s economic policy and the Tea Party in tow.

Ryan has been an advocate for his style of Social Security privatization since 2005 opening the door to the “vouncherization” of America. When then-president George Bush was arguing for introducing private accounts, Ryan introduced a bill that would have supported that effort by creating new private accounts, funded by -- gasp -- borrowing without any budget cuts to offset. This would have added $2 trillion in new debt over the first decade—the Bush Administration rejected it as too “irresponsible.” Then in 2006 when the Democrats had control of the House and were calling for restraint in spending, Ryan opposed the budget cuts and decreased spending.

The centerpiece for the GOP and conservative folk is small government. But how does expanding government reconcile with that ideology? Ryan voted in favor of the Patriot Act, No Child Left Behind, and the Iraq War. This expanded government spending, and the big ticket item the Iraq War which was funded with deficit spending to the tune of $807,000,000,000. With even half of that amount the states could have been funded with tons of infrastructure projects providing jobs for Americans. Instead, the federal government reduced funding to state programs that were already suffering from reduced tax rolls, massive unemployment, and strains on social services due to the economic depression forcing more people to access low income public services.

Furthermore, privatization and voucher systems endanger the apolitical nature of public services. The for-profit contract system of outsourcing government services risks the deterioration of programs without adequate government oversight, regulation and assurances that the best interests of the American people are being served.

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Resources:

http://themoderatevoice.com/155706/six-things-you-may-be-surprised-to-learn-about-paul-ryan/

http://costofwar.com/

http://www.columbia.edu/~ma820/privatization.nyt.html