The policy of privatization of public services has been endlessly promoted by the corporate right. Many local and national governments opt to adopt the privatization policy to raise more cash and save on costs. Governments privatize public services by moving the management and control of public services, such as roads, garbage collection, and airports, to the private sector. The reasoning behind privatization is a notion that private companies provide the services better and more efficiently than the government. It is also argued that such organizations have better approaches to cutting costs. The flaw in this argument is the avoidance of the fact that private organizations do not offer the services that would not generate high profits. The costs cutting approaches, for which the private organizations have cherished, might become the sources of inequality, unemployment, limited supply, and other undesirable outcomes of public services provision. Therefore, the government policy of privatizing such supplies would lead to the failure of all.
Privatization creates a natural monopoly that results in high prices for services, lower supply, and other allocation inefficiencies. The monopoly has the power to determine market prices of goods because of the lack of competition. If essential services, such as water, are privatized, the monopoly would be at liberty to increase the prices of the essential commodity to exploit consumers. The large number of low-income clients may not afford this offer at high prices. Since the basis of providing services by the government is not a profit motive, essential benefits would be available to consumers at the lower cost if they are offered by the government as opposed to privatization. Further, privatization may limit the participation of the public in the running of important resources. In public entities, they directly take part in the elections of public officials. Conversely, the public is not represented in boardrooms of private entities; hence, they cannot directly get engaged in the management of water resources.
Privatization would reduce the quantity of public benefits available to people. Private entities only supply the quantity of services that would lead to maximizing their profits. One of the techniques of profits maximization is to cut the output to stimulate demand. The reduction in supply causes scarcity of such benefits. When goods and services are scarce in the market, consumers pay higher prices for the offerings they have previously enjoyed at the lower expense. Privatization would result in unfavorable outcomes if private entities manage a supply occasion as the artificial shortage. Such ones are associated with allocation inefficiency; hence, they cannot be trusted to maintain the socially optimum provision of goods in the market.
Privatization causes the enormous human costs associated with lower wages, unemployment, and corruption. Public servants in the United States earn high wages ranging from fifteen to twenty dollars per hour in addition to health and retirement benefits (Ehrenberg & Smith, 2016). When a public organization is privatized, people that have previously earned high salaries are forced to brace with reduced wages and fewer benefits. Ironically, the executives of private companies taking over the privatized services get high salaries and other perks. Low wages are associated with huge costs, such as the reduction in demand. America is a consumerism economy, which depends on high inquiry to create jobs and generate revenues. The state agencies pick up the expenses associated with low wages. Essentially, privatization adds more costs than saving them in a long run.
Privatization leads to an increase in unemployment levels. Private companies only employ the quantity of labor that maximizes profits. Any amount of it beyond this level is compelled to accept the pay cut or face termination. For example, private entities pay nurses an hourly wage that is being lower than ten dollars (Ehrenberg & Smith, 2016). If a medical facility is privatized, the nurses who cannot accept this wage are rendered unemployed. The human cost of unemployment is enormous, including the payment of compensation to an unemployed person by the government. It would be infeasible for the state to privatize public entities, trigger unemployment, and begin paying unemployment compensation benefits.
Privatization is an incentive to corruption. Private investors are aware that when they are allowed to offer public services, they control the price and pay lower wages. The huge profits that can be generated from privatization influences the willingness of public officials to pay bribes and take up the ownership of public entities. The public managers can also deliberately mismanage public organizations to back up their case for privatization. The decisions concerning public services that are made under the influence of corruption, as opposed to sound economic principles, lead to the huge loss of revenue by the government.
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Private entities cannot prudently offer essential public services. The sensitive benefits that have been left in the hands of private companies have caused pain and sufferings to people. An example of the justification of missing prudence in public services provision is better seen in the privatization of prisons. An increase in the number of inmates indicates the higher revenues for prison corporations. Private entities would want long prison sentences to enable the generation of high incomes. They also aim at benefitting from prison labor. Privatization of jails has diverted an initial intention of this institution from serving as correctional organizations to cash costs for their managers. Privatization is a singular cause of the increase in the number of inmates in the US prisons. The suffering is further compounded by the sentencing of the large number of kids in private detention centers (Pelaez, 2014). It underscores an inability of private entities from offering essential public services.
Private organizations cannot efficiently offer the benefits aimed at maintaining national security. Privatization of services such as the military ones would cause deterioration of safety in the country. The sale of products used in the security sector such as handguns cannot be left to private individuals. They would sell these dangerous weapons to buyers that are willing to pay the highest price. Their prioritization of profit would impair the prudent offering of such services (Dunigan & Petersohn, 2015). Since these sensitive benefits are extremely important to the public, the government should offer and regulate their supply for the stability of the state.
In spite of the costs to the society associated with privatization, private entities have high levels of efficiency. They communicate more effectively with those government agencies. Private companies that have been involved in the provision of water helped to reduce its wastage by replacing archaic water pipes and streamlining the collection of revenue. Private organizations included in the provision of accommodation in universities have exchanged dormitories for high ambiance hotel rooms and restaurants on campus property at no extra costs (Adetunji & Mojeed-Sanni, 2015). The public-private partnerships have proved to yield high payoffs to both the public and private investors. The public ones enjoy efficient services. Concerning the government investors, they save the taxpayers’ money. However, there are many accounts where privatization of public services has led to the decline in services quality. Atlanta tried to privatize drinking water systems but it canceled the contract due to the offer of poor benefits and the supply of tainted water (Dunigan & Petersohn, 2015). The privatization of parking services by Chicago also resulted in high parking fees and the drop in business within the city (Dunigan & Petersohn, 2015). Visitors refused to come there in protest of high parking costs. The challenges of poor quality services are eminent when the government opts to privatize public offerings.
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Selling off public entities is a source of instant cash to the government that can be used to solve urgent financial needs. Privatization is also plausible if the public organization is constantly making losses. The government could avoid the costs of recurring expenses such as maintenance and labor ones allocated to the business. Some public entities are riddled with political pressures. Therefore, selling these organizations off would shield the state authority from these issues. However, this process is based on a short-term view, which is detrimental to the economy in a long run. Disposing of the public entity to solve an urgent financial need, such as the infrastructure development, shows that the government is interested in quick fixes to achieve political ends. Privatization would imply that the state loses one source of revenue. The annual profits that it could receive are diverted to private individuals.
In conclusion, privatization of public services leads to the failure of the services’ provision. The fundamental objective of the state is fairness, justice public safety, and equity, whereas private entities focus primarily on their profits. The discordance in the main aim complicates public services offered by private organizations. The long-term costs of privatization cast doubt whether the government achieves its initial objective of privatization or not. One governmental department may save by privatization but the outcomes of the policy may trigger an additional cost to other state agencies. As explained above, pay cuts resulting from this process may help the government institution to decrease labor expenses, but increase the spending on poverty and charity programs. Privatization leads to shifting of costs and not the reduction. Further, it worsens undesirable conditions such as inequality, scarcity, and insecurity. The perpetuity of these circumstances would lead to the failure of the entire nation.