26 October 2009

Privatization Formula

My previous post brought up "off-budget entities" (OBEs) as government "solutions" and related them--on the surface--to "public-private alliances" (PPAs), the current government enema-disguised-as-panacea.

Let's delve into this, shall We? (The OBE-PPA thing, not the enema thing...)

While OBEs are often, if not always, politically-motivated (why go "off-budget" for ANY public service?) and remain largely in government, PPAs are not often so politically-oriented, simply because they are almost always undertaken with the markets and in full view of voters. There's something to be said for transparency.

I'll use a small-scale example to illustrate My forthcoming larger points. Redding and Shasta Counties, in California, implemented several PPAs. Mary Machado, Executive Director of Shasta Voices, issued a report evaluating the results of those PPAs. Here's an excerpt:

"Machado's report looks at the pros and cons of privatization, giving local examples in which public-private partnerships have worked (Redding Library, Turtle Bay Exploration Park and Big League Dreams) and when privatization has failed (Shasta County public defenders office, Shasta County Mental Health Services and electric utility service for the city of Redding)."

Note what had worked and what had not: Worked: library, park, park; Not Worked: law system, health, utility. The split is indisputable: If it is a central government function, mere privatization does not work.

Now there are several dozen factors involved in this privatization analysis framework, but here are the basics, and from these, one can easily assess whether a PPA is aimed at public success (a "win-win") or political success (a "they win-We get shafted like a Saturn rocket just blasted up Our descending colons"):

1)  Privatization of a peripheral government service: Parks and convention centers are not core government functions; just imagine Disney World built and run by FEMA. (Make up your own jokes here.) When a peripheral government service is privatized, the odds are it will be a success, if for no other reason than the fact that a private company will be more efficient than a government agency. A second major reason is that most people will not use or care as much about the peripheral service when compared to a core service. If We see PPAs aimed at "releasing" peripheral services, We can relax a bit and focus simply on whether the privatizer is getting a sweetheart deal (which I'm sure is the case.)

2) Privatization of a core government service: The core government functions are defense (law system, police, military), infrastructure (roads, utilities, public service buildings), economic standards (treaties, incentives, banking regulations) and government revenue collection to pay for the above (taxes, fees, licenses, patents, etc.) If you can't directly place a government service in these four categories, it is not something the government should be involved in. That includes education. And before you ask, I place health care in "infrastructure," as in the government helps build hospitals and other health centers.

The problem with privatizing a core government service is that the hybrid moron created combines the worst of both parents: political influence and sole authoritative power on one side with self-serving greed and short-term vision on the other. The "You who disagree just shut the hell up" example? Health care in the U.S. of part of A., where a highly-protected (sole authoritative power + political influence) industry seeks ever-increasing profits (self-serving greed + short term vision) over decent patient care.

The result? A lousy expensive hybrid that satisfies only the few that benefit from it in government and insurance companies. We had a similar (but much smaller) example in Puerto Rico when the local government owned the telephone company, which became THE cash cow for the Fools. How? By charging long-distance call rates intra-Island that were higher than long-distance calls to many States. In effect, the phone company made profits--though it was a government service--severely hampered business development for decades (the phone bill was a major expense that limited entrepreneurs and centered offices in San Juan rather than islandwide) and harbored thousands of useless bodies as government "workers," a fact that was made abundantly clear when the company was being sold. 

What did the government do? Stepped in to protect the useless bodies' jobs. And that, in a nutshell, is the problem with OBEs, PPAs and privatization: They are aimed at government's goals, not Ours. 

Why would a private company want to take over a government service? Because it is almost always an exclusive niche. How many power companies do We have? Water companies? Port systems? Exactly. So taking them over means a company gains a monopoly that, like all monopolies in a capitalist economy, can only be established and kept with government help. (Don't give Me any "Windows" crap: "Word" has a bigger market share and other options have always been available.) 

So with a monopoly on the table, what kind of negotiation is involved? A give-and-take with the client/public in mind? Or a "share the power and wealth" cacklefest?

But if the government service is one where other entities compete--like the educational system or health care--what incentive will a private company or industry insist upon in order to take on the huge risk? Protection. If not outright monopoly, then clear-cut favoritism. 

In Our case, privatize the Stupid Convention Center? Go ahead, so long as the company that takes over doesn't get free electricity, free water and a tax break longer than three years or gets saddled with 120 workers where 35 will do.

Privatize the power and water companies? Go ahead, so long as the government stays on the regulatory side (performance standards, rate adjustment formulas, strategic development) and stays out of personnel issues and "special projects." Will the rates go up? Sure. But by eliminating the many--very many--subsidies and removing the debt load collection from political chicanery, the rise in rates will more closely reflect market realities rather than political realities. (There are pharmaceuticals here that pay less for electricity than the corner mom-and-pop bakery and municipalities owing millions of dollars dating back years. And don't give Me any guff about "But they create jobs." So do thousands of other entities and they pay their bills, on time and in full.)

Privatize the university system? Normally, I'd say "go ahead," seeing as how I think education in government hands is like science in a Scientologist's maw. But the public university system has followed the U.S. of part of A.'s model and that is the only aspect of education in the States that actually works at a world-class level. The University of Puerto Rico system boasts a Top 5 engineering school (in Mayagüez), serves over 106,000 students and though lurches more often than it walks proud, the system turns out a decent end product. Can a private system do as well? Only if it gets massive concessions regarding tuition, hiring, rent, utilities, legislation (for future projects) and subsidies.

Watch as the discussion about privatizing the UPR centers on "academic freedom" (bullcrap) on one side and "economic adjustment" (bullshit) on the other, but no mention will be made about the end product (students graduating and prepared for the coming economic changes)...until the privatizer asks for massive concessions. Then and only then will Our future college graduates be deemed important: to gain the secured niche.

And if that happens, in the UPR discussion or about another government service, remember the formula: Sole authoritative power + political influence + self-serving greed + short term vision = We are screwed.

The Jenius Has Spoken.

1 comment:

The Insider said...

These are strategies for managing the provision of services for full demand, particularly how to best manage (streamline) and offset cost (for government).

What about reducing "demand" itself in categories that are the biggest drain, or where PR simply cannot be competitive?

PPA, OBE, PPP. How about IPOM?

Incentivized Citizen Out Migration

Identify the demographic most draining on the government. Let's say the welfare class, and fully subsidize their move to the United States where they will certainly obtain a better education for their children. Meanwhile the costs associated with holding them in "inventory" for PR are offset by a "foreign" government completely.

Yes, this does sound like some form of governmental "expense category gentrification". So be it. Overall, everyone involved is better off.

The impact of this educational component are also in line with Gil's recent discussion on how education and Puerto Rico's death toll are interrelated.

I made the personal exodus. That is usually not possible for the welfare class who cannot afford moving expenses or even airfare in most cases.

I discussed it in more detail in my blog entry titled "Expatriating the Poor Boriquens to Save the Economy".

It took Singapore 30 years to re-engineer it's economy. Based on how it "felt to be in Puerto Rico", it will probably take about 60 years to get a clue on how to re-vamp education... everything is sssssslllllloooooowwwwwww....

So - at that rate - when your child turns about 65, if he hasn't been shot up in the streets or died from lack of adequate health care, then you can enroll him back in kindergarten.

Or you can move them to Florida where you can find a similar climate, pockets of similar culture, and vast improvements in everything else.