Feature: Analyzing Private vs. Public Enterprise



Gene Gerth returns with his extensive analysis of the day’s issues. This time looking at the American debate over what should be privately run and what should be public. From schools, to prisons to healthcare and more, Gene offers his take on the private vs. public debate.


BUSAN, South Korea -- Over the past three decades we have observed a slow, well planned and insidious takeover of public and non-profit American institutions by the private sector, to the detriment of the well-being of American society. Examples of this, among other things I will discuss, include our public school system slowly being replaced by private, for-profit charter schools, and with regard to law enforcement, private, for-profit prisons.

Additionally, in a previous article, I demonstrated that our private health care system is broken beyond repair and the refusal of the private sector proponents to budge on any sort of a national health care system for all or to repair Medicare (they would replace it with a voucher system) is costing our citizenry dearly.   

These actions have been motivated by laissez-faire social-Darwinist-capitalist greed, exemplified by Koch Industries and the Coors family, as well as right-wing think tanks and the false libertarian notion that the private sector can do everything better than the public sector. With regard to the public school system additional fuel has been added by the religious right, to include the Dominionist and Reconstructionist movements.

The main conservative thrust of this public vs private debate was perhaps no better put than by former US president Ronald Reagan when he famously said: “Government is not the solution to your problems. It is the problem!”   

Well, unfortunately, with regard to the benefit of the average American, it hasn’t turned out that way. Let’s now look at some specific examples of what has happened and the result.

Public vs. Private Schools

Let’s start off with comments made by former Republican presidential candidate Newt Gingrich. On a recent morning news program, Gingrich stated that the Catholic private school system was much more efficient and less costly than the public school system. Well, guess what? Of course it’s less costly because most of the teachers and staff are Catholic Sisters (nuns) who don’t need to be paid a salary, and most of the schools are located on tax free Catholic properties. Can’t figure out however how he seems to think that they’re more efficient.

Now let’s do a comparison of for-profit charter schools to public schools with some specific examples. In the timeframe since 2008, a company called White Hat Management has collected approximately US$230 million in taxpayer dollars, to run charter schools in the state of Ohio. The company is a national chain and has around 20,000 students nationwide. Last year it was sued by 10 of its schools and the state of Ohio for failing to properly disclose its financial records. We’re talking about taxpayer dollars being furnished to these private institutions which are supposed to be educating our children. According to a report by the Nation Education Policy Center, a nonpartisan research group at the University of Colorado, of the 51 schools White Hat managed in 2010, only one met a key standard established by the No Child Left Behind Lawcalled “Adequate Yearly Progress”.

Stanford University did an extensive study that looked at charter schools in 16 states. The results demonstrated that 17 percent of charter schools provided superior educational opportunities than did public schools. Another 46 percent were determined to have results equal or similar to public schools. However, 37 percent were determined to deliver learning results that were significantly worse than their public school counterparts (2). Unfortunately, the current media coverage usually only includes stories about charter schools that are highly successful and specific public schools that are failing. Now think about this. Would you rather your local school tax dollars go to a “for profit” agency that supposedly educates your children, or to a public system where you would actually be able to vote for school board members, have a voice at a public school board meeting and/or Parent Teacher Organization?  

Additionally, if the company is making a profit, where does that money come from? Your child’s computer lab, their athletic or music program, field trips? You tell me. For further information on how Governor Bobby Jindal and the state of Louisiana are attempting to marginalize and destroy our public school system, click here. This link also discusses the “voucher system” advocated by many on the religious right and supply side conservatives, which, by the way, would be a disaster for our public schools. As described in my previous article, “What Happened to my Parents’ Republican Party?”, right wing folks now label it (the vouchers) falsely as “school choice”, since in reality they are actually use of your taxpayer dollars to further their own agenda.

Now having stated all of the above, this author does not suggest the abolishment of private academic primary and secondary schools such as Andover and Exeter as well as the Missouri Military Academy and Shattuck-St. Mary’s, just to name a few. These schools have a history of very high academic achievement and could well be described as the Ivy League of secondary education. Students attend on scholarships or at the expense of their parents, not at the expense of taxpayers. Nor do I suggest that private Catholic or other religious schools be done away with, as long as they are not eligible for any sort of voucher system which would be at the expense of you and I as taxpayers.

An additional note on how right-wing influence on our higher educational system is occurring. Libertarian Charles G. Koch (of Koch Industries) has pledged a $1.5-million grant to the Florida State University's economics department. Here is one contingency attached to that grant: a Koch representative will be allowed to screen and sign off on any hires to faculty positions in the school. The donation offer will be withheld if this condition is not met. Excuse us, Koch Industries, but most of us consider the power of university faculty and administrators to choose professors without outside interference to be a hallmark of academic freedom (3).

With regard to the few paragraphs above comment on the religious right, their primary focus has been and continues to be teaching students what to think rather than how to think. This falls right in line with their dogmatic theology and encouragement for parents to do home schooling, which could be considered by some as a mild form of child abuse.

The Prison System  

For this topic some background information is necessary, which brings us to our old friends, The American Legislative Exchange Council (ALEC), also described in the above-mentioned previous article “What Happened to my Parents' Republican Party?” The process started with the little-known federal program, the “Prison Industries Act”, also known as the Ashurst-Sumners Act, which was enacted in 1935. Initially it was crafted to prevent interstate transportation of goods made by convict labor. In 1979, the US Congress modified this law with the Prison Industry Enhancement Certification Program, which exempted states from this requirement.  This opened the floodgates for private for profit prison companies and the formation of an (at the time non-profit organization) Prison Rehabilitative Industries and Diversified Enterprise (PRIDE), whose stated objective was to educate and train prisoners for work in the private sector upon release.  

Now, this all may sound great, but statistics demonstrate that the private sector PRIDE has been no more effective at this than public sector prisons were before. In fact this act has adversely affected the private sector, due to the wide range of programs utilized by PRIDE, which will be explained below. In addition, ALEC pioneered some of the stiffest sentencing laws enacted in several state legislatures. Examples include mandatory minimums for non-violent drug offenders, “three strike” laws and “truth in sentencing” laws.  

In 1995 alone, ALEC’s Truth in Sentencing Act was signed into law in 25 states (4). Prison labor for the private sector was for many years banned due to the fact that it created unfair competition for the private sector. With the growth of the US prison population however (in line with the ALEC pushed stricter sentencing laws), many states became unable to deal with growing prison populations and were forced to contract out much of their prison population to private prison corporations.  

Here are the statistics: one out of every 100 people in the US is incarcerated. We are 5 percent of the world population but have 25 percent of the world’s prisoners. We have the distinction of being the number-one jailer in the world. Most of this is due to antiquated drug laws which ALEC fights fiercely to keep on the books. Examples include the fact that 47.5 percent of drug arrests in California in 2007 were for marijuana offences. Almost 60 percent of state prison inmates who are serving for drug offences have no history of violence (5).

Now let’s quote from Alex Friedmann, associate editor of Prison Legal News: “Prison labor has already started to undercut the business of corporations that do not use it. In Florida, PRIDE has become one of the largest printing corporations in the state. Its cheap labor is having a significant negative impact upon smaller local printers.”

Several states are looking to replace public sector workers with prison labor.  In Racine, Wisconsin inmates, thanks to our friend Scott Walker, are now doing landscaping, painting and other maintenance work. These inmates are not paid any salary, but receive time off for their work. Those are jobs that could be going to hard working unemployed Americans.  

As Scott Paul, executive director of the Alliance for American Manufacturing, put it, “It’s bad enough that our companies have to compete with labor from China, They shouldn’t have to compete at the same time against prison labor here at home.” And quoting Friedmann again, “Just as mass incarceration has burdened American taxpayers, so is the use of inmate labor contributed to lost jobs, unemployment and decreased wages among workerswhile corporate profits soar” (6).  

And finally, let’s look at some of the salaries of private prisons for profit executives: George C. Zoley, founder and chairman of the board and CEO of GEO Group, the second largest private prison industries company, received a 2011 fiscal year compensation package of $5.7 million. John M. Hurley, GEO detentions and corrections officer and board of directors member, $1.5-million compensation package in the same year. Brian R. Evans, CFO and senior vice president GEO, 2011 compensation package $1.4 million (7).

For more details on this subject check go here, here and here, from which much of the information for this article was extracted, plus a recent CNBC investigative documentary, “Prisons for Profit”.

Health Care  

With regard to this issue, please click on my previous article, “Let’s Talk About Health Care”, for an extensive analysis. However let’s remember that this is one of those areas where shared responsibility works best. It would be impossible for the government to produce and develop all of the hardware such as CT scanners, x-ray machines and the myriad of other technological devices needed for health care. The private sector has an important role to play in the development and manufacture of these devices. This is definitely an area where a for-profit private enterprise can make a meaningful contribution.

The Postal System

Question: when was the last time you could send a letter by UPS, FedEx or DHL for 45 cents? Having made that statement, however, this is another area where both the public and private sectors can work in harmony to best serve the needs of the public. There will always be a market for those who wish to send large bulky items to their destination by a fast efficient carrier such as FedEx, DHL or UPS even though the cost may be higher than it would be if the item were sent through the United States Postal Service (USPS). In addition, the USPS can function much more efficiently without having to deal with such items on a regular basis as demonstrated by the problems it is involved with during the “Christmas Rush Season”. In fact the USPS has, on occasion, purchased space on the commercial carriers mentioned above for shipment of their own items at cheaper rate or price than it would be for them to ship it by their own means. In addition, approximately 25 percent of the country has no other postal service other than USPS.

Many of us complain about the so called “junk mail”, but let’s remember this: a majority of USPS income is from junk mail, and it provides the private sector with an efficient and inexpensive way to advertise. Other forms of advertisement would be more expensive and therefore make your product cost more. Eh?

Manufacturing and Service Industries

One of the great symbols of the way private sector capitalism can and should work was Henry Ford. He fully understood the way to use consumer driven economics to his full advantage, and at the same time take care of his employees. As mentioned in a previous article, his company profits went from $25 million in 1914 to $57 million two years later.  His example demonstrates that, with proper incentive and vision, a private sector company or small business can work to benefit both themselves and the society they operate within. However, from time to time the private sector has not utilized this vision. Examples include, primarily, the US auto industry when, in the early 1970s, it failed to anticipate the demand for smaller fuel efficient cars, therefore giving Japanese automaker the opportunity to gain large market shares here in the US. Other examples include the corporate failures of Enron and Tyco in the early 2000 period, and in the financial sector failure of the recent great recession.  

Now these failures most likely would not have occurred had not a bevy of government deregulation taken place, which had its start in the 1980s, culminating with the repeal of the Glass Steagall Act in 1999, and then really picked up steam with the Bush supply siders after the year 2000.

Overall, however the manufacturing and service sectors operating within the so-called free market system have been hugely successful when compared to similar activities utilized under a centrally planned economy. Chairman Mao’s “great leap forward” and Soviet attempts to produce the motor vehicles without Western assistance, such as the Lada, have been a dismal failure and are prime examples. Also let’s not forget our Korean neighbor to the north whose economy sputters along and cannot even feed its people properly.      

Agriculture and Food Production  

The American farmer has been able to turn US agriculture into the world’s breadbasket. Through technology and an abundance of fertile land, America has been able to produce foodstuffs on a scale unimaginable to most countries at the beginning of the 20th century. Our supermarkets brim with items (most at reasonable prices too) that nourish and, in most instances, keep us healthy. Of course it goes without saying that American agriculture has had its problems such as in recent history when the small family farm was replaced with the more technologically advanced and efficient large family and/or corporate farms. That, however, was unavoidable due to technological advances; and by the way, it’s called progress.  

Additionally, there have been environmental problems and biohazards created by large livestock farms and their inability to control their waste products as well as the overuse of growth hormones and antibiotics on livestock and poultry in overcrowded feed pens. However, with proper regulation and enforced compliance, these problems are being solved.  The historical record demonstrates that this can happen if not stymied by laissez-faire extremists; to quote former Republican presidential candidate Governor Rick Perry of Texas, “Vulture Capitalists”. (No reference to Mitt Romney intended; the Koch Brothers and Coors family, yes.)

In contrast centrally planned economic agriculture has been an abject failure as demonstrated by the collective farm systems adopted in the Soviet Union, Maoist China and our neighbor to the north. Historically, Soviet markets had empty shelves more often than full or even half full. Our neighbor to the north has experienced famine on more than one occasion. As stated above, one needs only to look at the historical record for substantiation of this point.    

All or None or Some of the Above?

We can see that the privatization of two of these entities (education and incarceration) has led to a degradation of services and a great disservice to society. We can also see that a cooperative effort between the public and private sectors (health care and the postal system) can definitely benefit society. And, lastly, there are two areas (manufacturing and agriculture) where private enterprise with proper regulatory procedures and appropriate consumer protections in place can not only serve society well, but enhance the wellbeing of many of its citizens. With regard to the brevity of comments on three of the last four items as compared to the first two (health care being the exception since this author has covered that item extensively in a previous article): success is rather obvious and is apparent form historical evidence (as stated with the item) and everyday results. In the first two items (education and incarceration), failure, disguised by propaganda, requires significant research and analysis to expose what the true facts about them are.

Of course there are many areas of economic endeavor not covered in this article, some of which would work best as a private enterprise, and some of which would better serve society as a public enterprise. Let’s not forget, however, the attempt by some right-wing extremists and libertarians to privatize the social security system and any other government program they happen to dislike.  Let’s ask what would they expect next, a for-profit Marine Corps?

Having observed all of the above facts and analysis, it is quite obvious that a privatization of everything from A to Z in a social-Darwinist laissez-faire-style economy will not enhance the well being of all members of a society. It is also historically evidenced that centrally planned government controlled economies have not been beneficial to the members of a society. Examples of these failures have been listed above with the items.  There is one instance, strangely, however, where this worked (centrally planned economy), that many of us forget. If Joseph Stalin had not implemented the forced industrialization of the Soviet Union in the 1920s and 30s, Nazi Germany would have easily overrun that country in WWII (8). This item should not be construed in any way to indicate support of any type of centrally planned economy. It is simply to indicate a quirk in history most of us are not aware of that was beneficial to the whole world.  

In closing, we can see that today the prevalent attitude among right-wing conservatives, and unfortunately many other Americans, is that anyone who supports a balanced approach to private and public sector institutions can be labeled as a socialist or even a communist (as was done to Robert Reich, the prominent Princeton University economist) by Bill O’Reilly of Fox (Faux) News. They fail to look at the success of the countries of northern Europe, which have used this balanced approach, and, by the way, have a higher standard of living than we in the US have; their citizenry is rated on all scales happier than ours, and have successfully almost eliminated unemployment and poverty in their societies.

As in previous articles reference notes, as well as an extensive bibliography, are available upon request.


Gene Gerth is currently retired from Active Federal Service and is Chair of the Busan City Chapter and EXCOM member of Democrats Abroad ROK. He is the former Eighth Army Moral Welfare and Recreation Division Entertainment Director and Adjunct Assistant Professor at the University of Maryland's University College Asian Division. For more detailed information on obtaining references to some of the articles in this story, you can contact him by email.


Notes:

(1)  Rolling Stone Article, 4/11/205, by Bob Moser, Eternal Hostility, by Frederick Clarkson, Chapter 4.
(2)  Op Ed by Isaiah J. Poole, dated 9 Sept. 2011, House Conservatives Charter Ideology over Educational Reality, http://www.truth-ou.org
(3)  Op Ed by Kris Hundley of the St Petersburg Times dated 11 May 2011 “Koch Brother Buys the Right to Interfere in Faculty Hiring at Florida State University” http://www.truth-out.org
(4)  Op Ed published on The Nation, http://www.thenation.com  1 Aug 2011 “The Hidden History of ALEC and Prison Labor”
(5)  News Analysis by Diane Rasor, 26 April 2012, http://truth-out.org/news/item/8731-
(6)  Op Ed published on The Nation, http://www.thenation.com  1 Aug 2011 “The Hidden History of ALEC and Prison Labor”
(7)  News Analysis by Diane Rasor, 26 April 2012, http://truth-out.org/news/item/8731-
(8)  23 Things They Don’t Tell You About Capitalism, by Ha-Joon Chang, Thing 13 page 140





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