Is It Unwise to Privatize?

Short answer: It all depends.

Privatization is one of the English language’s more woebegone words. It’s a plug-ugly Frankenstein’s monster of a term—a noun born of a verb carved out of an adjective. And nobody can quite agree on what it means. To some, it refers to contracting out the delivery of publicly funded services. To others, it’s transferring governmental assets to private hands. Still others take the broad view, labeling as privatization the overall shrinkage of the public sector. 

The Privatization of Everything: How the Plunder of Public Goods Transformed America and How We Can Fight Back
by Donald Cohen and Allen Mikaelian
New Press, 368 pp.

Donald Cohen and Allen Mikaelian say it’s all of the above, and they say to hell with it.

Cohen is the founder and leader of an Oakland advocacy group, and Mikaelian is a Washington, D.C.–based writer and editor. Their spirited jeremiad flows from a vision far grander than fixing any one policy. “We need a shared commitment to public values and a movement that can embed those values into systems of laws, policies, institutions, governing practices, and decision-making at all levels of government,” they write. 

That’s certainly a sentiment I can get behind, but such profound cultural change rarely happens in a hurry. And chasing America’s private sector from public roles is neither necessary nor sufficient for this kind of communitarian transformation. 

It would be folly, of course, to deny the damage inflicted by the wrongheaded involvement of business organizations and market principles in American governance. Cohen and Mikaelian array a long list of outrages: The city council in Kansas City, Missouri, turning the sidewalks in a rowdy nightlife district over to a business consortium itching to impose security measures harsher than government can get away with. An education management company in Ohio riding roughshod over students and taxpayers alike in its relentless pursuit of revenues. The squalid predation of many for-profit colleges. Georgia’s preposterous decision to put its legal code behind a private paywall. The examples demonstrate that private engagement, poorly managed, can indeed undermine public goods and services. Appalling as each anecdote may be, however, the litany of baneful tales—selected from the whole country, with some going back to colonial times—comes to feel as cherry-picked and unsystematic as parallel right-wing horror stories about brain-dead government. 

In the first few pages, the authors define privatization as “the transfer of control over public goods to private hands.” Most would agree that this sounds pretty noxious, but the straw man definition misrepresents a definite risk as an inherent feature, comparable to defining progressivism as “putting bureaucrats in charge of your personal business.” Cohen and Mikaelian don’t really attempt a disciplined effort to demarcate the boundary between the individual and the collective, settling instead for sweeping characterizations and a one-size-fits-all solution to a wildly diverse social challenge. Two things are true of nearly everything important in American life: It involves both the public and the private sectors, and it falls short of the ideal. Thus, it’s usually plausible—but almost always wrong—to see the path to perfection in purging one sector or the other. This book’s bias toward ending rather than mending private involvement in collective undertakings squanders the opportunity to propose practical improvements.  

The authors conflate three policy arenas—the scale of the public sector, the ownership of specific assets, and the delivery models for government services—which ultimately muddles more than it illuminates. All three are shaped by the hallmark individualism of American culture, but otherwise display quite different causes and consequences. “Understanding privatization means understanding that it is first and foremost a political strategy,” they write. By the broadest of the three definitions—shrinking the overall public sector—this was certainly true under Ronald Reagan, and the book’s thumbnail sketch of the players and the plots from that era is deftly done. But the deepening strategic incoherence of the American right makes the starve-the-beast narrative questionable today. The Trump administration’s approach to public spending had all the steadiness of an over-caffeinated squirrel—sometimes stingy and sometimes profligate as political expediency or presidential whim dictated—and it’s impossible to discern Reaganite austerity as the dominant theme of its budget policy. 

High-level schemes, moreover, are seldom the main motive for asset transfers or service outsourcing, the other two aspects of Cohen and Mikaelian’s big-tent definition of privatization. Such policy assuredly can turn out badly for the public at large, but junky analysis and garden-variety cronyism are far more common causes than political strategizing. The players on the business side of the table are generally just out to make a buck. This doesn’t make them communitarian good guys, but neither can the antigovernment right count on them as reliable coconspirators. 

The nice thing about working with profit seekers, after all, is that smart governments can exploit this powerful motivation to get useful things done for the public. It takes good analysis and political fortitude to ensure that businesses must deliver public value—a paved road, a bag of groceries for a poor family, a lifesaving new vaccine—as a condition for collecting profits. As this book amply documents, sometimes governments fail to uphold this value-for-money condition, through bad faith or sloppy thinking or both. But enlisting private means to serve public ends has long been a routine feature of American life. The private sector accounts for about 85 percent of American workers, most of them capable, honest, and invested in American success. Do we really want to exile them from our common causes? 

The authors’ tilt toward sweeping alarmism rather than discriminating analysis obscures privatization’s vast diversity of motives, models, and outcomes. This book’s treatment of water systems, claiming two full chapters, is characteristic of their absolutist attitude. The tone suggests that rapacious businesses are on the verge of monopolizing every precious drop, keeping us all parched and filthy unless we pay what they demand. But a closer look reveals a more complex and far less distressing situation. Water systems involve a mix of public and private, in the U.S. and elsewhere, and have for a long time. The right private roles are far from self-evident, though a good rule of thumb is that the more room for competition in a task, the stronger the case for tapping the private sector. Facilities design and construction, equipment supply, and some aspects of management can meet those standards. The high public salience and immovable nature of water systems makes privatizers sitting ducks against backlash when they fail to deliver, and despite the suggestion of privatization run amok, most Americans (other than folks with their own wells) get their water from government-run systems. The book repeatedly references the water system atrocity in Flint, Michigan—where a budget crisis and disastrous policy judgment combined to poison a majority-Black community—which had little to do with conniving corporations.

The nice thing about working with profit seekers, after all, is that smart governments can exploit this powerful motivation to get useful things done for the public. It takes good analysis and political fortitude to ensure that businesses must deliver public value as a condition for collecting profits.

For fans of the public sector, Cohen and Mikaelian take an awfully dim view of government’s ability to benefit from private-sector expertise and dynamism while erecting guardrails against misbehavior. Had they devoted more attention to another critical domain—food—they would have found that our public officials can be quite capable of understanding and managing private motives. Our food system nourishes American bodies with a little public money, a lot of private money, plenty of public regulation, and overwhelmingly private production and distribution. It’s far from perfect—some people get too little healthy food; most of us are chronically tempted by profitable junk; and the food industry too often harms workers and the environment. But it is also far from catastrophic, thanks to a network of practical policies—from targeted subsidies to safety and sanitation inspections and labeling rules—constructed over decades in response to particular private abuses and excesses. In ways that are too familiar to notice much, we’ve done a decent job of structuring food system institutions and incentives to induce private players to serve the public interest. Hardly anyone, presumably including Cohen and Mikaelian, would advocate for collective farms and government soup kitchens as the right fixes for the remaining flaws in our heavily private food system.

A pragmatic, case-specific, evidence-based approach to private roles is usually the right idea. That’s the Washington Monthly’s general stance on privatization, and mine as well. Yes, we should always plug away at making the policies that channel private energies stronger and smarter. And yes, in some areas, this is just too hard to do, and we’re better off on balance with an also-imperfect public model. Cohen and Mikaelian do briefly acknowledge that the key issue is the form, not the degree, of private involvement. “We should not object to government contracting or outsourcing per se, but we should resist giving control of a public good over to a private concern,” they write. But too often this nuanced, conditional approach is submerged by the assumption that private involvement is toxic to public purposes unless proven otherwise. 

The book’s discussion of private players in education shows the downside of a sweeping rather than selective approach. It’s dead right about the misbegotten initiatives in post-secondary lending under Bush the Younger and Donald Trump, though the blunders, again, concerned the form rather than the degree of private responsibilities. It’s a little-known fact that federal college lending has always relied heavily on private contractors. But sensible administrations structure the contracts to safeguard borrowers’ interests. There’s a story to be told here that’s entirely consistent with the book’s argument about the centrality of public control, but Cohen and Mikaelian show little appetite for descending from grand principle into the unsexy but essential details. 

The private sector accounts for about 85 percent of American workers, most of them capable, honest, and invested in American success. Do we really want to exile them from our common causes?

At the K–12 level, most actual teaching—unlike eminently contractable support functions for public schools—is far too complex and delicate a task to entrust to the profit motive. Though one wouldn’t know it from this book, a late-20th-century for-profit education fad has since crumbled, with many of the would-be privatizers losing their shirts. Cohen and Mikaelian have little good to say about the charter school movement, a distinctly American hybrid model, where, for my money, the jury is still out. The worst charter schools are ghastly. The best of them are magnificent. And the difference is mostly driven by the quality of governance. The private sector responds to the opportunities a city or state’s charter system serves up. Massachusetts, where charter rules are smart and tough, generates better outcomes than states with looser systems, such as Michigan. If the rules reward crooks and clowns, that’s what you’ll get. Well-crafted charter policies, conversely, attract and empower idealistic innovators. 

Most broadly, the book’s narrative of a dwindling public sector is simply at odds with the facts. Government spending’s share of GDP—counting federal, state, and local—has averaged a bit higher over the past quarter century than the prior one, with the zigs and zags driven more by macroeconomics than by policy swings. Leaving out the 2020 pandemic spike, government spending under Trump rounded out to the same 32 percent of GDP it had been under Reagan. It was a little higher under Bush 41 and Obama, a little lower under Bush 43 and Clinton. The withering away of the state that the authors decry as one of privatization’s hallmarks is conspicuously missing from the budget data. 

This earnest, lively book certainly has its virtues. A progressive activist facing post-Trump challenges keeping her blood at a nice rolling boil will find that its inventory of transgressions should do the trick. A connoisseur of rip-roaring polemics will savor the craft that Cohen and Mikaelian deploy. And if there are any free market fundamentalists out there who are open to persuasion, the parade of disasters should prove instructive. But a city manager in some struggling California community wrestling over whether it’s a good idea on balance to outsource park maintenance will find little guidance here. 

The book ends with calls for a sea change in American life. Cohen and Mikaelian want government to become more participatory and transparent, skeptical about markets, and bound by rules enforcing these norms. And they want Americans themselves to become more interested in and fonder of government. It’s a nice sentiment, but even on a good day, I can see only glacial movement in this direction. America has been an outlier on the individualistic side since de Tocqueville’s time. It seems wise to expect that Americans’ views of government in 2031 will look more like those of Americans in 2011 or 2001, or maybe even 1789, than those of, say, today’s Danes. If I turn out to be wrong about this, I’ll happily buy a round of drinks for Cohen and Mikaelian. Meanwhile, let’s keep working—with the America we have, not the America we wish we had—to harvest the benefits and fend off the harms of our country’s signature public-private mash-up.

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John D. Donahue

John D. Donahue teaches at the Harvard Kennedy School and is the author, most recently, of The Dragon, the Eagle, and the Private Sector (with Karen Eggleston and Richard Zeckhauser).