Dr. Howard Chernick addresses the CRDC as Francine Haselkorn,
State Committeewoman, looks on.

Privatization: Government’s Leap of Faith
—Get Out the Stretcher 


It was challenging for the Chelsea Reform Democratic Club to host a program discussing the dismissal of large swaths of public employees without the fear of cries for the lost public-sector jobs, but that’s what happened at the club’s June 16th forum called “Privatization of Government Services” at the Hudson Guild's Elliott Center. The event, organized by Francine Haselkorn, County Committee Woman, 75th district, and Judy Richheimer, CRDC Exec VP & Program Director, brought much debate.

Those in attendance were showered with studies, statistics, anecdotes and arguments, both pro and con, by Dr. E.S. Savas, Presidential Professor, School of Public Affairs at Buruch College;  Elliott D. Sclar, Professor of Urban Planning, International Affairs and Director of the Center for Sustainable Urban Development at Columbia University; and Dr. Howard A. Chernick, Professor of Economics at Hunter College, member of the Graduate Faculty in Economics, City University of New York, and research affiliate of the Institute for Research on Poverty at the University of Wisconsin-Madison. 

The parameters of the meeting were well-defined by Richheimer: "the transfer of government functions to private contractors while maintaining our progressive values of transparency, efficiency, and the economic justice of maintaining well paying jobs that the public sector offer people, while getting more bang for the public's buck." 

Privatization has become a quick-fix solution to years of declining tax receipts, rising costs of a workforce, health care and tort litigation for the communities across New York State and the country. Compounding the dilemma is additional revenue streams, such as the implantation of permits, fees, fines, street violation cameras, and lotteries, have been expanded to the point of public nausea. But, although the disposal of large chunks of payroll, benefits and responsibility might seem financially attractive to cities strapped for cash, privatization eliminates the public’s voice in holding electeds accountable for those services rendered. Suddenly the public is dealing with non-public contractors and subcontractors.

Historically, privatization was born out of poor service, not financial distress. Dr. E.S. Savas, who wrote the book on the topic (actually many books), and who’s professional career dates back to working for NYC ‘s Mayor Lindsay, related the infamous snowstorm of 1969 that derailed Lindsay’s White House ambitions. Savas was asked by Lindsay to study why NYC Department of Sanitation was so poor in responding to a mayoral storm emergency (the snow storm shut down parts of the NYC for a over a week). Salvas found the public sanitation workers were plowing half the time (the rest of time was spent on an assortment of breaks). Savas also discovered that the cost of city sanitation employees were well over the city’s private commercial haulers, allegedly controlled by the mafia. Savas explained to the audience that his plan of privatizing NYC’s Sanitation Department didn’t go over well in City Hall or the newspapers. Savas didn’t mention that he laid out the seeds in creating a public sanitation workforce that is, quite possibly today, second to none.

Dr. Savas continued, “The United States goes to great efforts to protect the public from private monopolies. The unspoken assumption is that public monopolies automatically operate in the public interest. That’s nonsense. Monopolies, be they private or public can become fat —meaning over staffed,  dumb — meaning immune to innovation, and happy —blissfully content with the status quo. Major savings can come from not lower wages, but fewer wages. Competitive contracting, properly done, is the best way to bring competition and more efficiency.”

Countered Elliott D. Sclar, “If everything was properly done we would be living in Eden.”

Dr. Howard Chernick added that, as contracts expire, competition inevitably degrades. “The firm that wins the initial contract acquires specialized knowledge and also networks by hiring people from the public sector.”  

Both Sclar and Chernick introduced the forum to the dark side of privatization, relating the many pitfalls including campaign contributions to elected officials that have influence in awarded contracts, low ball bids with backdoor cost over-runs, the lowering of employee wages & benefits, and the outsourcing of jobs to foreign countries. 

Sclar declared, “Companies do what is profitable, not what is efficient and you don’t always get what you pay for. ” He described a private company that was awarded a 2008 contract by New York State to digitize the fingerprints and other personal information that were being removed from an upstate warehouse. The $3.45 million contract required that employees, who scanned the documents, pass background checks and the preferred source of work would be done by people with disabilities. Rather than follow the letter of the contract, Focused Technologies Imaging Services of Menands, N.Y., outsourced the work to India for $82,000, risking the privacy of 16 million people.

In an example of how privatization often shifts the burden of compensation back to the government, Sclar, who's also a consultant for the Amalgamated Transit Union, described a para-transit driver in Washington DC who works thirteen hour days, yet is paid so little that “she lives in a shelter, gets food stamps and receives medicaid.” He continues, “The University of California at Berkley did a study of what low wages cost us and found that the Government spends $153 billion a year subsidizing workers who’s salaries keep going down.”

Dr. Chernick, in addressing the complexities of how the success of privatization is pivotal to other facets of society, spoke of the importance of a higher minimum wage, “Raising the minimum wage would put a higher floor on the ability of a firm to use the federal food stamp program and medicaid as co-financiers for it’s employees.” 

Chernick also talked of the growing usage of outsourcing social programs to non-profit organizations, saying it is used as a way to test a new social programs using limited federal money without having to hire additional staff. He pointed out that government doesn’t like it’s money paying high salaries for non-profit management', but rather to the programs themselves. He cited a recent list of the salaries of America’s corporate and non-profit leaders that topped off at $100 million a year and summarized, “Every top executive, whether it be profit or non profit, thinks he or she should be up in that realm. The distribution of pay and benefits at private firms is skewed toward the top. Based on that, shifting contracts to private firms verses the government, you would get less value for your money.”

The debate of privatization touched upon the subject of municipal bus service. Elliott Sclar used it as an example to simplify the topic as a whole. “When a bus driver goes down the street, it doesn’t matter who signs the pay check, the bus driver’s productivity doesn’t change. It’s one bus, one driver. Outsourcing saves money by lowering wages.”

Savas disagreed, offering the group a plan to privatize NYC bus services. “I estimate that if it is done right, New York would save over a billion dollars a year.”  In the Q & A portion of the forum, Savas was asked by Burt Lazarin, a CRDC attendee who also sits on Community Board 4, as to where that savings would come from.  Savis responds, "Last time I looked, NY City bus drivers, with seniority, would drive for six hours a day but get paid for fourteen. They choose a high density route in the morning and then, since they have seniority, they don’t have to work during the middle of the day —Ah!" Savas exclaims, "But that’s part of their eight hours. Then late afternoon when they work again, they get paid time and a half. You still have one driver for one bus, as Elliott said, but the fact remains you're paying for fourteen hours for six hours of driving. Public employees get overtime because of bad management and these kinds of arrangements.” 

Savas spoke glowingly of the total privatization of the bus service in Copenhagen, Denmark, a system that even stretches into Sweden. “Denmark’s transit regional office has reduce their costs by about 25%. They have a constant competitive arrangement using three large firms —one French, British and American— and five small Danish firms. They rebid contracts about every five years and are doing exceedingly well.”

Sclar countered “If we’re talking about Denmark, they have pensions, they have a public health system, and they have a welfare state. Who pays the bus wages is something different and is out of context.”
Sclar summed up, “What we should be talking about is not privatization, but how we make the public sector work better. To make the lives of those, who do those services, harder —I don’t see that as a progressive vision. And, unless you’re prepared to deal with pay for play, privatization is just a hollow abstract conversation to have.” 

Sclar did report some good news, “Eighteen States, all of which are republican, anti-union, and had embraced privatization, have since passed legislation demanding more scrutiny of contracts.” He said, adding,  “The states found out they were being taken to the cleaners.” 

Chelsea Reform Democratic Club
PO Box 1120,
Old Chelsea Station,
New York, NY, 10113-1120