Free markets vs. the public interest

Private sector profit centers in public markets

As far as I know, all or essentially all neoliberals, laissez-faire capitalists and other free market advocates uniformly argue these days that free markets do better for the public interest or general welfare than government. That is rock solid dogma and not questioned. Dissenters are attacked and smeared as socialist or communist crooks, liars and tyrants or totalitarians. Current evidence indicates that the free market dogma on this point is false. Arguably it has to be false for undeniable structural reasons. 

Specifically, (i) free markets usually demand and get higher returns than governments, making the product or service more expensive right from the get-go, (ii) alleged private sector efficiency and alleged government fraud and waste do not compensate for the difference, and (iii) actual, real-world evidence indicates that free market efficiency usually does not translate to lower prices or better products ands services for the public for government products and services. 

But for some capitalists and ideologues at the top, the wealth and power rewards for believing and living the pro-free market myth are gigantic. The free market mega-incentive demands blind, absolute adherence to the myth of its superiority. Belief in the myth is unshakeable, just like the Republican's 2020 stolen election myth.

Salon writes:

The Privatization of Everything is a book that sneaks up on you. Or at least it snuck up on me. Donald Cohen and Allen Mikaelian's subtitle should have prepared me: "How the Plunder of Public Goods Transformed America and How We Can Fight Back."

Slowly but surely, it dawned on me that the authors had articulated a sound, sensible and compelling vision about how realize the promise embedded in the preamble to the U.S. Constitution: "to promote the general welfare." That vision holds the promise of a pathway to rebuilding civic trust and a sense of common national purpose. That might seem to be wishful thinking, especially at this historical moment. But public goods are highly popular across the board, with Republicans as well as Democrats and independents, ....

Salon: Let's start with some of the basic, broad principles or perspectives in your book, starting with the idea that what's been privatized is the entire notion of public goods.  You argue that they shouldn't be understood in terms that economists have used, as "non-excludable non-rival goods," but rather should be defined by the public itself. Why is that important?

Cohen: .... health care is a private good. you can exclude people, and we do, and of course there are only so many doctors and nurses and hospital beds. So if it's a private good, the market drives and the market rules. But if it's a public good, then we get to say that everyone should have it. We should be able to do that democratically and not let the neoclassical market definition of public goods define what we can do.

Salon: You repeatedly make the point that privatization is more expensive, even when it appears cheaper upfront. This is glaringly obvious in one way, since private investors routinely expect double-digit returns while public bonds typically return around 4% a year.

 

Cohen: Businesses have legitimate business expenses, as well as pretty high executive compensation packages, in the millions, depending on the corporations. They have returns to investors, profit. They have political expenses, lobbying, and they also have debt, because they're involved in mergers and acquisitions, buying up other businesses. All of those are business expenses, none of which, fundamentally, is being spent on the service.

They say they're efficient, but efficiency is just spending less to get more. There's a finite list of things you can spend less on. You can have fewer workers, which they do. It happens in private prisons, they have higher ratios of prisoners to corrections officers. You could pay them less, lower wages and fewer benefits, which they do. You can use lower-quality equipment or supplies, that happens as well. And ultimately, you can give less service. When they privatized Medicaid in Iowa and Kansas, know what happened? Simple math. You got less care. So it's it's really a fallacy when they say "more efficient." There may be things you can do to make services more efficient, we should always strive to do that. But when they say "more efficient," really what they mean is they're going to spend less, and quite often that's very much counter to our interests.

Salon: My next question is about the basic logic of who's being served with public versus private financing, where interests and incentives aren't well-aligned. That's perhaps clearest in your discussion of public-private partnerships, or P3s.

Cohen: Yes, particularly involving infrastructure. The way you build stuff is design, build, finance, operate and maintain. That's how infrastructure is built. So, design/build is often private. When you bring in private finance capital, which is more expensive than public finance — often a lot more expensive — then the private financiers, usually along with the consortium, want to take control of the asset, do the operations and maintain it for decades.

So several things are true there. One of which is they're paying more for capital. The second thing is, they say they'll do it cheaper and faster, and they often say "with no new taxes," when they're advocating for public-private partnership. But there's a real simple truth: Things cost money and there's only one place to get money. From us. If it's not a tax it's a toll, if it's not a tax it's a rate hike. There's no free lunch. There's no free money out there. So that's the first thing you have to put aside. It's going to cost money. The question is who's going to get it.

I use the example of Chicago parking meters as the example on P3s. [Private investors, led by Morgan Stanley, paid the city of Chicago $1.16 billion for a 75-year operating contract in 2008. That had realized a $500 million profit as of 2019, with 64 years to go.] There are two things wrong with the deal. It was an incredibly stupid way to borrow money on your future revenues. But even if that was the only option, they got taken. They sold $1 billion too cheap.

But here's the real problem with P3s. If the city wants to eliminate parking spots, to get people out of cars with rapid transit or dedicated bus lanes or pedestrian street malls or by changing housing patterns — the responsibilities of a city — they have to buy the parking spots back. That's the core of what the problem is, because when [private entities] get control of the asset, they get control of the decisions that we ought to have. The city of Chicago's elected leaders — the city council, the mayor — their hands are tied if they want to expand transit.

The interview is long and it goes on and on. The quoted portions make the point. Free markets are inherently and, because humans are human, intractably at odds with the public interest or general welfare. 

To be blunt: Free markets are there to maximize profits for the people at the top and un-subverted government markets are there to minimize costs for the public good. Or put another way, the business of business is business, but the business of government is service to the public interest or general welfare, which includes providing the best at lowest cost. 

To flog this dead horse one more time, free markets do just one thing: They look to maximize profit by selling stuff at the highest price with the lowest production, worker, social and environmental protection cost, risk and accountability. By contrast, governments look to meet public needs and wants at the lowest cost for the most people. Those are two fundamentally different things. Both want the lowest cost for different reasons, profit for the private market and maximized public good for government. That generally makes the two intractably at odds.