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Time to Revisit Privatization

In recent Bacon columns I’ve written about reforms such as government relying on the private sector for commercially available goods and services, the need for private sector jobs creation, competitive contracting and the establishment of a land inventory.

What these reforms have in common was brought clearly into focus by Senator Judd Gregg (R-NH), the senior Republican on the Senate Budget Committee. “In the next five years, President Obama’s budget will double the national debt; in the next ten years it will triple the national debt,” Gregg said in the GOP response to the President’s March 28 weekly address. Given the Obama administration’s budget proposal that would call for an estimated 250,000 additional new Federal employees, the increase in the national debt and the associated expansion in government, a venerable government reform should be front and center once again – privatization.

A widely used strategy popularized by Margaret Thatcher and Ronald Reagan in the 1980s, privatization has been used by governments on virtually every continent. State-owned assets such as highways, airports, railroads, energy utilities and others have been sold or leased in nations with all flavors and philosophies of government and economics where there has been the realization that the state does not need to own many industries. Rather, privatization has proven to reduce costs, provide higher quality service and increased innovation by transforming government monopolies into competitive private markets, leaving public resources for functions only government can inherently perform.

In 1987 Reagan created a Commission on Privatization and an Office of Privatization in the White House. The commission reported its findings and recommendations in March of 1988, the last year of his Presidency. Its 278-page report made 78 suggestions in an effort to make government more efficient. Among them:
Eliminate the Postal Service’s monopoly on delivering letters.
A system of educational vouchers should be established to give parents greater freedom in selecting elementary or secondary schools for their children. (Congress just eliminated a charter school pilot program in the District of Columbia).
Expand its voucher system for low-cost public housing instead of building new projects, while selling existing public housing to residents where possible.
The management of military commissaries and Federal, state and local prisons should be contracted out.
Airport control towers should be privately run.

Sell the Government’s $250 billion portfolio of housing, business, agriculture and education loans, as well as the naval petroleum reserves, urban mass transit systems and Amtrak rail passenger service.

Strategies including direct conversion contracting out, vouchers, asset sales and leases, public-private partnerships, privatization, divestiture and other instruments to transfer activities from the government to the private sector were all proposed by the Reagan Commission, but few have been implemented by the federal government.

In fact, while Reagan was a great champion of privatization, little was done to transfer assets and functions to the private sector during or since his presidency. There were successes, such as Conrail and the National Consumer Cooperative Bank which Reagan transferred to the private sector and the Elk Hills Naval Petroleum Reserves and the U.S. Enrichment Corporation which were privatized by the Clinton Administration. The administration of George W. Bush closed the Department of Agriculture’s Rural Telephone Bank last year.

Foreign countries and financially strapped governors and mayors in the U.S. have generally been positive about these types of privatization, seeing them as ways to mine their balance sheets by turning relatively unproductive physical assets (in reality, liabilities) into financial assets. Virginia’s leadership experience in public-private partnerships on highways is an example of innovative privatization strategies at the state level.

A Federal land inventory could identify real estate the government could more profitably turn over to the private sector. A Reason Foundation study estimated land valued at $160 billion, not national parks and wilderness areas, but income-producing “commodity lands” administered by the Bureau of Land Management and the U.S. Forest Service, could be sold.

President Obama doesn’t have to look far to see the benefits of privatization. His historic election-night victory speech was given at Grant Park, atop an underground parking garage system the city of Chicago leased for 99-years to Morgan Stanley Investment Management for $563 million.

In a recent speech before the Business Roundtable, President Obama said, “I don’t like the idea of spending more government money, nor am I interested in expanding government’s role. I’ve always been a strong believer in the power of the free market. It has been and will remain the very engine of America’s progress – the source of a prosperity that has gone unmatched in human history. I believe that jobs are best created not by government, but by businesses and entrepreneurs like you who are willing to take risks on a good idea. And I believe that our role as lawmakers is not to disparage wealth, but to expand its reach; not to stifle the market, but to strengthen its ability to unleash the creativity and innovation that still makes this nation the envy of the world.”

As noted by Dr. E.S. Savas, a professor in the School of Public Affairs at New York’s Baruch College, a former deputy city administrator and author of “Privatization: The Key to Better Government” (Chatham House, 1987), America’s first experience with privatization happened in 1492 when Queen Isabella hired an Italian contractor to explore the western ocean; she didn’t turn to her foreign ministry or her ministry of war. America itself is named after a contract mapmaker – Amerigo Vespucci.
It is time America turned its attention to privatization again.

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