Chapter 11 – Absurdity #7 – Privatization

I live in Cary, NC. The water I drink comes from the town of Cary. This means that the town owns the water treatment plant, the pumps, the water towers and the pipes that work together to bring water to my house.

I pay less than a penny per gallon for the water that my family and I use. The same is true for every home, apartment and business in the Town of Cary.

The Water Resources department in Cary has a web page, and it states the goals of the department:

  • Ensuring high-quality drinking water,
  • Unquestionable availability of water resources, and
  • Impacting the environment as little as possible with the return of wastewater we treat and the stormwater we manage. [ref]

To handle the load, the department has 42 employees [2018]: supervisors, managers, engineers, technicians, specialists, assistants. These employees all make moderate salaries, and everything about it is transparent. You can look up all of the employees online if you want, call them on the phone, email them… it is all right there for everyone in town to see:

Town of Cary phone numbers

Now imagine that we privatize the Cary water supply. A corporation is formed, and it purchases the water system. Will the water become any better? No. In fact, nothing will change, except for one thing – the price of the water will start rising. Why? There are dozens of costs that will suddenly appear out of nowhere, for no reason, providing nothing of value. For example:

  • It being a corporation, there will need to be a CEO, and he will need to make millions of dollars.
  • The CEO needs all the customary “C-suite” attendants: CIO, CFO, CTO, etc., and they all need giant salaries too.
  • These executives will all require huge salaries, stock grants and annual bonuses of course.
  • These executives will all needs assistants, staffs, perks.
  • There now needs to be “profit” – money charged over and above the cost of producing and delivering the water. The “profit” is handed to “shareholders” every quarter or every year in the form of dividends. These shareholders do absolutely nothing of value and were non-existent when the town delivered the water. The executives of course – already highly paid – will also get a lot of the company’s stock, and therefore a lot of the dividends/profit.
  • In many cases there will be maintenance cutbacks, and other cutbacks, because these lowered expenses mean even more profit.
  • There needs to be a sizable ad budget for the corporation, so the CEO can be on TV and the radio talking about how wonderful he is and how wonderful the new, improved water corporation is. Plus the corporation needs to get its name out there so it is highly recognizable. Propaganda, in other words.
  • And so on…

So what happens? The cost of water rises to 1 cent a gallon, then 2 cents, then 3 cents… There really is not much to limit it, because the corporation has essentially a monopoly, and everyone needs water.

A 2009 analysis of water and sewer utilities by Food and Water Watch found that private companies charge up to 80 percent more for water and 100 percent more for sewer services. A more recent study confirms that privatization will generally “increase the long-term costs borne by the public.” Privatization is “shortsighted, irresponsible and costly.” [ref]

How do we know and understand that privatization works like this?

  • Because, for example, this is how America’s privatized healthcare system works. Corporations make pharmaceuticals, they oversee hospitals, they run the insurance companies, they manage doctors’ offices, and so on. Pick any pharmaceutical corporation and it has all of these extra expenses tacked on to sickening levels: outrageous CEO and executive salaries, dividends, ad budgets, and all the rest. As a result, Americans pay far more for healthcare than citizens of any other developed country.
  • Because, for example, this is how America’s privatized broadband providers work. Companies like Comcast create de facto monopolies by region, and then they jack up prices to support outrageous CEO and executive salaries, dividends, ad budgets, etc. As a result, Americans can pay far more for broadband service and get poor performance.
  • Because, for example, this is how America’s privatized prisons work. The cost per prisoner goes up, and the private prisons want as many prisoners as possible so they push for more draconian sentencing. The “Kids for Cash Scandal” is just one of many examples, and is so famous it has its own Wikipedia page [ref]. [ref]

For just about any utility, which everyone in the society needs and where there is no differentiation (water is water), having “society” handle it is better than privatization: water, sewer, electricity, broadband, postal delivery, prisons, health care, and transportation are all examples. Privatization does nothing but add exorbitant costs.

If we think more broadly, the same logic applies. For example, companies like Walmart and Amazon can be run as utilities, and the significantly reduced costs would benefit everyone. Fedex and UPS do exactly the same thing as the post office, and all three could be operated as the single post office, saving society a huge amount of money.

Every time a company privatizes a function needed by society in general, a huge number and huge variety of extra costs get attached to the cost of the function’s delivery. In designing a new economic system, we can and should eliminate all of these extra costs.

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