Privatization Debate

This is a Facebook debate I carried out with a friend with regard to consequences of privatization on society.

L. Larry Liu: Examples why privatization is bad. Rather than raise cost efficiencies or competition, it leads to consolidation and enrichment in the hands of the few at the expense of the many.

Louis Capozzi: One definite example of where privitization is good is the liquor industry, as people in Pennsylvania and North Carolina realize for the most part. Prices generally increase when the government runs certain industries in order to cover the higher labor costs that arise when said government makes overly genrous concessions to the Unions. Many County nursing homes in PA are being sold right now (Mike Keramidas) because employees are paid dollars per hour above industry standard and receive almost 50 days off per year!

L. Larry Liu: Louis, you have to forces at play in the public sector. On the one hand, the concessions to unions might be larger in the public than in the private sector, because the increase in costs are passed down to taxpayers, which is not so easy to pass on to customers in the case of the private sector. (This CBO report argues that federal workers have higher compensation than private workers in low-education jobs, but lower incomes in high-education jobs: On the other hand, the public sector can run enterprises more efficiently, because they don’t have to divert enormous profits to benefit shareholders and executives. What matters in the total calculation is which cost is more significant. It might very well be that if competition is strong that prices can be pushed down. But if the price competition is very intense, then the industry consolidates and the cost of the good will be very high, such as for cell phones and internet services in this country.

Louis Capozzi: Larry, you are assuming that shareholders and executives don’t add value to the company, value that could decrease expenses related to production and, in turn, the prices of goods. Very often, the reason why public sector wages are higher is because politicians depend on the Unions to be elected, and therefore find it in their best interest to offer higher wages using taxpayer dollars.

L. Larry Liu: Louis, what do you mean by shareholders and executives adding value to their company? The expenses that are reduced in the production process involve the squeezing of the underlying workforce. If a company reduces labor expenditures by $500 million, so it can pay out $300 million in bonuses and dividends to executives and shareholders, it does not mean that the $200 million in difference are in any way beneficial to the society even if they benefit the company. Some costs of goods may decrease, but it is questionable whether the consumer will experience an equivalent benefit to what the workers, whose livelihood depends on the given paycheck (at a given wage rate), has lost, because the $300 million have entered the coffers of the few rather than the many.

The dynamics of the political process are very well understood. But you have to argue this question in a more complex way given the political forces in this country: we are experiencing a frontal assault of unions by Republican-led state governments in Wisconsin, Michigan and other states that have stripped public-sector unions from collective bargaining, which weakens the power of these public-sector unions. It seems to be that you want the public-sector workers to be treated the same as the private-sector workers currently (i.e. low job security, low wages, low benefits etc.). I think it would be better that private-sector workers should be treated like public-sector workers currently.

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2 Responses to Privatization Debate

  1. Pat Pec says:

    Private sector workers treated like public sector worker is a very good anecdote…

  2. Pat Pec says:

    perhaps antidote.

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