Academic journal article Emory Law Journal

Privatization and Its Discontents

Academic journal article Emory Law Journal

Privatization and Its Discontents

Article excerpt


The question of what government should control exclusively and what it should delegate to private entities is as old as government itself. In ancient Greece, ownership of forests and mines rested with the government, but the government "contracted out the work to individuals and firms."1 And in ancient Rome, the private sector "fulfilled virtually all of the state's economic requirements," like tax collection, supplying the army, and feeding the sacred geese of the Capitol.2 Though privatization is nothing new,3 it's becoming an increasingly important issue as government gets bigger and its functions multiply. As the pressure to privatize increases, we must be mindful of its advantages and pitfalls.

Privatization comes in two basic flavors.4 First is the shift in the production of goods and services from the government to the private sector,5 such as privatizing Amtrak or the Tennessee Valley Authority. This process belongs to the world of law and economics6 and won't be addressed here, except to say that privatization of production is generally a good thing. Moving in the opposite direction-toward communism-doesn't work.

This Article will focus on the second flavor of privatization, meaning the shift of government functions to private control.7

As you likely know, privatization offers many benefits. When combined with competition, it can improve efficiency and lower costs.8 FedEx and UPS compete with each other and drive down prices, while still turning a profit.9 Contrast that with the U.S. Postal Service, which loses billions of dollars a 10 year.

Privatization also leads to specialization. In fact, the modern administrative state is built on the idea that the government needs agencies to specialize.11 For example, areas like medicine and air quality are beyond Congress's ability to manage directly, so it established the FDA and the EPA. And sometimes, the experts needed to work in these agencies are easier to find-or at least easier to motivate using market incentives-in the private sector. Thus, by privatizing certain government functions, we can allow private companies with specialized expertise to run them.

When you combine competition and specialization, you get efficiency. Efficiency isn't something you can usually count on in government because the incentives are misaligned.12 If you're the government and your costs increase, you can just raise taxes. But if you're a private company, you have to figure out how to reduce costs or increase revenue, or you'll go bankrupt.

These benefits mean that privatization of many government functions is not at all controversial. Nobody minds if Atlanta hires a private construction firm to build a city office building. And we don't complain when janitorial services at federal buildings are performed by private contractors rather than government employees. But what about privatizing core government functions?

Public institutions are public for a reason. Sometimes, it's because of the tragedy of the commons.13 We all need clean air and feel that the governing rules should be written with public input and enforced by a politically accountable entity, so we established the EPA. Sometimes, it's a collective action problem.14 We all need national defense and want to ensure that military power is used at the direction of our elected, civilian commanders, so we formed a public military. And sometimes, it's a moral sensibility. We want to deter crime and punish criminals, but we don't want victims to exact private retribution.

Privatizing such core government functions can give us some gains in efficiency, but we risk forfeiting the benefits of the institutions' public character-in particular, equality and accountability.15 This Article will focus on areas where the pressure to privatize and the challenges to equality and accountability are most acute-education, prisons, the military, and the justice system. By focusing on each of these in turn, we hope to highlight some of the pitfalls of privatization and suggest some ways to avoid them. …

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