Tag: privatization

Is Education “Privatization” Really Just Devious Deceit?

Education historian Diane Ravitch is against charter schools, voucher programs – any sort of education “privatization.” And that’s fine. I just wish she would bring more to bear in opposing such measures than accusations about privatizers’ hand-rubbing, dastardly motives, and unsupported assertions about what privatization has or has not done.

Here’s the part that really got to me in Ravitch’s latest writing on privatization:

A quarter century after privatization began in earnest, it is clear that its main effect has been to undermine the public schools. Actually, that has always been the goal of the privatization movement. Their propaganda campaign – which now spans from Kenya to the United Kingdom – blames public schools for the persistence of poverty and for the low test scores of children who grow up in poverty, without adequate food or medical care.

The privatization movement has cleverly and deceitfully branded itself as a “reform movement.” As they divert resources and students from public schools, which still enroll the vast majority of students, they congratulate themselves for leading a civil rights movement and introducing market discipline into what has traditionally been a government responsibility.

These are pretty tough accusations. But where’s the evidence? Ravitch offers basically none, save attacking the 1983 report “A Nation at Risk” for overinflating the dangers posed to the United States by its education system. (A point, by the way, to which I am sympathetic.)

But demonstrate that the main goal—and effect—of privatizers has been to hurt public schools, not help kids? No evidence. That privatizers have “deceitfully” used the term “reform movement,” as if more school choice weren’t somehow a reform? No evidence. That they blame public schools, presumably exclusively, for the persistence of poverty? No evidence.

I can’t speak to the motivations of others, but my goal in supporting “privatization” is absolutely to reform the system and help not just children, but all of society. Not only do I think the evidence shows public schooling does not work as well as free-market education academically, government schooling is fundamentally at odds with basic American values, forcing social conflict and creating inequality under the law. And Ravitch herself has furnished a significant amount of the evidence that has led me to those conclusions.  

Those conclusions have, of course, caused me to believe that the government monopoly over education should go away, and that funding should follow each, unique child to the educational options chosen by his or her parents. The end of government schooling, however, is not my goal, but a consequence of achieving my desired goals: improving education and maximizing liberty.

There is also weighty evidence of the power of privatized—meaning, really, freedom-based—education. As James Tooley’s work has vividly illustrated, private, for-profit schools seem to be providing education, typically better than the public schools, to many of the poorest people in the world. And the cases of Sweden and Chile to which Ravitch points actually furnish far from damning evidence that choice fails.

Of course, Ravitch may not agree with the findings of Tooley and others, but she at least ought to deal with them. Instead, she brusquely dismisses privatization and impugns the motives of “privatizers.” To truly determine what’s best for children and society, that’s not a very useful argument.

Johnson and Weld Are Right, Clinton Is Wrong: Congress Should Privatize the VA

Listening to Hillary Clinton put her big-government ideology before the needs of veterans (see below video) brings to mind an email exchange I had recently with a correspondent who had questions about privatizing Medicare, Medicaid, and the Veterans Health Administration.

The video is an interview with Libertarian presidential and vice presidential candidates Gary Johnson and Bill Weld into which MSNBC interjected a telephone interview with Democratic candidate Hillary Clinton. Clinton protests (starting at 4:20) that Congress should not privatize the VHA, while Bill Weld, a former two-term Republican governor of Massachusetts, gives one of the best explanations I’ve seen of why it should (10:00).

The email exchange follows the video.

WSJ Reports on Canadian Air Traffic Control

In today’s Wall Street Journal, Scott McCartney reports on the superior air traffic control (ATC) system north of the border. American aviation is suffering from a bureaucratic government-run ATC, while Canada’s privatized system is moving ahead with new technologies that reduce delays and congestion.

Showing leadership and boldness, House Transportation Committee chairman Bill Shuster managed to get reforms along Canadian lines passed out of his committee. Unfortunately, Senate Republicans have thus far been too timid to move ahead with restructuring. The flying public may have to wait until a reform-minded president can push an overhaul through Congress.

Here’s some of McCartney’s reporting:   

Flying over the U.S.-Canadian border is like time travel for pilots. Going north to south, you leave a modern air-traffic control system run by a company and enter one run by the government struggling to catch up.

The model is Nav Canada, the world’s second-largest air-traffic control agency, after the U.S. Canada handles a huge volume of traffic between the U.S. and both Asia and Europe. Airlines praise its advanced technology that results in shorter and smoother flights with less fuel burn.

In Canada, pilots and controllers send text messages back and forth, reducing errors from misunderstood radio transmissions. Requests for altitude changes are automatically checked for conflicts before they even pop up on controllers’ screens. Computers look 20 minutes ahead for any planes potentially getting too close to each other. Flights are monitored by a system more accurate than radar, allowing them to be safely spaced closer together to add capacity and reduce delays.

And when flights enter U.S. airspace, pilots switch back to the old way of doing things.

The key, Nav Canada says, is its nongovernmental structure. Technology, critical to efficient airspace use these days, gets developed faster than if a government agency were trying to do it, officials say. Critics say slow technology development has been the FAA’s Achilles’ heel.

… Another innovation adopted around the world is electronic flight strips—critical information about each flight that gets changed on touch screens and passed from one controller to another electronically. Nav Canada has used them for more than 13 years. Many U.S. air controllers still use paper printouts placed in plastic carriers about the size of a 6-inch ruler that controllers scribble on.

For more on ATC, see here.

Unfair Postal Competition

With the rise of electronic communications, the volume of snail mail has fallen precipitously, and the U.S. Postal Service (USPS) has been losing billions of dollars. The 600,000-worker USPS is an unjustified legal monopoly that is heavily subsidized. It is a bureaucratic dinosaur that Congress should put on the way to extinction.

In April, I highlighted an excellent study by Robert J. Shapiro that described USPS subsidies in detail. The subsidies include: exemption from taxes, low-cost government borrowing, monopoly protections, and other special benefits.    

Shapiro completed another study in October, which is a great addition to the postal debate. He details how government-conferred advantages have translated into cross-subsidies from USPS monopoly products to products sold in competitive markets. The USPS uses its monopoly over letters and bulk mail to unfairly compete with FedEx, UPS, and others on express mail and packages.

Shapiro finds that USPS raises prices on its monopoly products, and uses those extra revenues to artificially push down prices on its competitive products. For USPS, this makes sense because consumers are less price sensitive for the monopoly products than for the competitive products. Shapiro concludes, “USPS has strong incentives to cross-subsidize its competitive products with revenues from its monopoly operations,” and it does so by $3 billion or more a year.

The Congressional Pack Rats

The U.S. Congress hoards real estate like proud pack rats. For example, the Department of Defense has 562,000 facilities that cover 24.7 million acres—an area about the size of Virginia.

The Pentagon has surprisingly indicated that it might be wise to shed some of its real estate. Congress has stonewalled the Pentagon on this. Indeed, Congress has barred the Pentagon from even thinking about the Department of Defense’s excess asset problem.

The congressional—and often bureaucratic—asset-hoarding pathology is a result of perverse economic incentives that accompany public ownership. These incentives encourage bad behavior. The fact that capital carrying charges or rents are not paid for publicly owned assets means that no costs have to be budgeted for holding them. Once assets are under government ownership and control, they are viewed as being free; nothing must be given up for the assets’ use and retention. Furthermore, if a decision is made to dispose of some of those assets, the revenues from their disposal are usually not earmarked for use by the department or agency that initiates the sale. Hence, there are no bureaucratic or budgeted benefits that flow from the liquidation of government property.

I ran into both congressional and bureaucratic stonewalling over 30 years ago when I designed President Reagan’s privatization program. Until capital carrying charges on public assets are budgeted (read: charged), the game will remain rigged in favor of the pack rats.

Coping with the Legacy of Arab Socialism

Countries of the Arab Spring suffer from many economic, social, and political ills. At their center lies the unfortunate legacy of Arab Socialism, which established itself in the region during the 1950s and 1960s. One of its features, besides the ideology of Pan-Arabism and international ‘non-alignment,’ was an emphasis on government ownership and industrial planning. Far from generating prosperity and economic growth, these policies resulted in large, vastly inefficient government-operated sectors in several Arab economies. My new Cato Policy Analysis provides a sense of the magnitude of the problem and of its evolution over time:

In Egypt, for example, the share of government investment fell from around 85 percent in the late 1990s to below 40 percent in 2012. Over the same period of time, the share of government investment in Algeria doubled, from around 30 percent to above 60 percent. Throughout much of the same period, the average for lower-middle-income countries hovered under 30 percent.

Some Arab governments, most prominently Hosni Mubarak’s regime in Egypt, attempted to put in place large-scale privatization programs. However, these were perceived (and rightly so!) as attempts by the political elites and their cronies to simply seize publicly owned assets, without much regard for the future restructuring of the companies and their exposure to competition. My paper reviews the experience of privatization in other countries and tries to provide some practical lessons to policymakers in countries such as Egypt or Algeria.

First and foremost, privatization needs to be perceived as fair and transparent. Bidding should be competitive and open to a large spectrum of potential bidders, domestic and foreign. Second, private ownership of the financial sector is a requisite for successful privatization and restructuring of the rest of the economy–otherwise Arab countries risk creating a dangerous nexus of cronyism through which the state-owned banks and financial institutions would provide funding to newly privatized companies. Third, in order to avoid the danger of simply replacing government-run monopolies with privately-run ones, privatization should be far-reaching and accompanied by broad economic liberalization and opening up both to trade and investment.

Privatization is not very high on the agenda of Arab policymakers or foreign experts, and is typically eclipsed by the more immediate political concerns about the region. It is not, however, an issue that can be simply ignored.

It is a mistake to think that economic reforms can wait until Middle Eastern countries address their internal political and economic problems. There are not many examples of countries that have transitioned successfully to a representative constitutional government while maintaining economic rules that deny opportunity to large segments of the population. State ownership, accompanied by regulations that favor existing state-owned incumbents, are a critical part of the problem facing countries in the MENA region, most notably Egypt, Libya, Algeria, Syria, and Yemen

The Post Office Is Broke: End Washington’s Postal Monopoly

The United States Postal Service has run up $4 billion in losses so far this year, on top of last year’s $15.9 billion deficit. Washington should get out of the mail business. 

Congress created the Post Office in 1792, turning it into an important patronage tool. Legislators also passed the Private Express Statutes, giving the government a monopoly over first class mail.  

Washington imposed fines on early competitors, including the famed Lysander Spooner. Uncle Sam continues to rigorously police his monopoly.  

The Postal Service boasts that it would rank number 42 on the list of the Fortune 500—but that is only because the other 499 companies on the list, as well as everyone else, are barred from competing to deliver mail. Unfortunately for USPS, government lawyers cannot force people to send letters. The number of pieces of mail delivered dropped from 213 billion in 2006 to 160 billion last year. 

In 1971 Congress voted to turn the post office into a quasi-private company. However, Washington preserved the monopoly, retained control over system operations, and preserved a variety of indirect subsidies. For instance, USPS is exempt from taxes, regulations, and even parking tickets.