The Lessons of History and Privatization of Public Services

The Lessons of History and Privatization of Public Services
Spirit of Justice in America, Image by DonkeyHotey via Flickr Creative Commons

By Matthew Ari Jendian

The Fresno City Council voted 4-3 to hire a Walnut Creek firm to investigate outsourcing residential trash service on Aug. 16. The majority of the City Council was led by Lee Brand (and joined by Larry Westerlund, Clint Olivier and Andres Borgeas), who suggested that “the survival of the city is at stake.” Mayor Ashley Swearengin touted that her “plan to privatize residential trash service will not only help Fresno’s bottom line but save residents…15% or more on their trash bills.”

Outsourcing supporters say Fresno is “broke” and needs annual franchise fees paid by private haulers ($2 million annually) to avoid financial disaster. HF&H Consultants’ July 2012 report notes that 1) Fresno pays trash haulers 21%–26% more than a private contractor, 2) Fresno can sell its garbage trucks and trash bins for $12.2 million and 3) up to 176 positions would be affected by the outsourcing. The 105,000 residential households are promised future trash service rate increases will be “limited…and subject to City Council approval” and they won’t “notice much change with a private hauler.”

Privatization sounds so good, three Fresno County Supervisors, including Debbie Poochigian, want to make it even easier to outsource county services—from security to legal representation for the poor to the operation of parks and libraries.

According to The Fresno Bee (Aug. 5), Fresno Criminal Defense—a private law firm—offered to take over the Public Defender’s Office. “Other bids to provide security at parks and municipal buildings suggested the county could save up to $1.4 million annually through outsourcing.” However, Bee reporter Kurtis Alexander noted these savings are reduced when other factors are considered, such as the resulting “unemployment costs of laid off workers” and rate increases from the private company over the length of the contract for providing services.

The Human Costs of Privatization

New York Times reporter Motoko Rich (“A Hidden Toll as States Shift to Contract Workers,” Nov. 6, 2011) identified privatization’s human costs: Employees get paid less and lose benefits when public functions are privatized, and other state agencies pick up the resulting costs. So, rather than “cutting costs” and “saving us” money, privatization just shifts costs. As the private contractor cuts pay for its workers, another government agency spends more on poverty, nutrition or health programs for the people who now make so little.

Dave Johnson of the Campaign for America’s Future asks, “[I]s it in the public interest for Americans to be paid less and not receive benefits?…[T]ax cuts leave governments desperate to raise cash, so they sell off public assets…Instead of democracy collecting taxes from the 1%, privatization leaves everyone poorer and paying rent to the 1%.”

Changes in the U.S. Tax Structure over Time

Wealth for the Common Good (April 7, 2010) reports that “the top 0.1% of U.S. taxpayers saw their average share of income paid in federal taxes drop from 60% to 33.6% between 1960–2004. …From 1950–1963, the federal tax rate on ordinary personal income over $400,000 never dropped below 91%. Between 1963–1980, that same top rate never dropped below 70%.” Today’s top marginal tax rate is 35%, and the capital gains tax rate is 15%.

Privatization: Conflicts of Interest and Lessons from History

A fundamental conflict of interest exists between public and private. Producing a profit is not the purpose of government—its purpose is service. “The ‘private’ in ‘privatization’ means that it is done for the private gain of a few. When a public function is privatized it means that instead of operating for the benefit of We, the People—the 99%—it is operated for the benefit of a few—the 1%” (“Privatization Nightmare,” Alternet, Nov. 17, 2011).

In addition to increased unemployment and reduced pay for returning and new employees, privatization increases the likelihood for corruption on the part of public officials. If private companies (or the people at the top of the corporate ladder) stand to make huge profits, then an incentive exists for them to “influence” public officials about whether to privatize.

Spanish philosopher George Santayana (1906) wrote, “Those who cannot remember the past are condemned to repeat it.” We all know this truth, but do we know Tom Johnson (18541911)? Johnson, according to Peter Dreier, was the most effective progressive reform mayor, elected on a populist platform to serve the people, not special interests: “If you do not own them, they will in time own you; they will rule your politics, corrupt your institutions and finally destroy your liberties.”

Professor Dreier describes early 20th century American cities: “Big business was growing in size and political influence…Bribery of local officials was widespread, giving businesses private monopolies over key public services…typically run inefficiently. Cities were starved for cash, but businesses paid little taxes…[C]ities fought to tax wealthy property owners, create municipal electricity and water utilities, and hold down transit fares…They expanded the number of municipal parks and recreation programs and improved local schools.”

Dreier recounts Johnson’s biography as “a wealthy businessman” who became a “class traitor”: “Johnson’s father had fought for the Confederacy…and his family had owned slaves…Johnson quit school, took an office job with a street railway company, and worked his way up to superintendent. He invented a pay-box for trolleys and became wealthy from licensing the patent. In 1876, he purchased his own railway line in Indianapolis…He would purchase broken-down streetcars and make minimal repairs, then use political clout and bribes to get local officials to extend the railway system, selling them the reconditioned streetcars for huge profits.”

During Johnson’s term as Cleveland’s mayor (19011909), “the city took over garbage collection and disposal and street cleaning, eliminating the bribery and corruption associated with those activities when they had been controlled by private firms.”

Johnson’s effort to create a municipally owned electrical utility overcame significant opposition from private utilities’ owners and the Chamber of Commerce. They warned it would lead to socialism. Cleveland’s business leaders frequently have attempted to “persuade” city officials to sell “Muny Light.” Today, Cleveland Public Power’s 300-megawatt system ranks among the largest municipally owned electric utilities in the United States, continues to provide service to nearly 80,000 residential and commercial customers and creates a benchmark price preventing price gouging by local private utilities.

How long will it take to learn these lessons of history and for a future city administration to fully reverse the current return to privatization?


Dr. Matthew Ari Jendian is a professor and chair of sociology at California State University, Fresno.


  • Community Alliance

    The Community Alliance is a monthly newspaper that has been published in Fresno, California, since 1996. The purpose of the newspaper is to help build a progressive movement for social and economic justice.

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