Why Privatization Is Wrong
Many reject privatization for its distributional consequences. The deeper problem is that it threatens the very foundation of political legitimacy.
November 24, 2020
Nov 24, 2020
18 Min read time
Many reject privatization for its distributional consequences. The deeper problem is that it threatens the very foundation of political legitimacy.
The idea of a privatized state sounds like a contradiction. Yet it is the state of contradiction in which we currently live. Without exaggeration, one may say that if the twentieth century was the age of the bureaucratization of the modern state—with its expanded class of ministers, public officials, and civil servants—the twenty-first century has been the age of its privatization. Since the 1980s, rulers around the world have promised smaller governments. President Bill Clinton of the United States, in his 1996 State of the Union address, twice proclaimed that “the era of big government is over.” But Clinton was wrong. What the new era has delivered is not smaller governments, but rather bigger, yet privatized, ones.
The idea of a privatized state sounds like a contradiction. Yet it is the state of contradiction in which we currently live.
Ask yourself: Who pays for your children’s public education? Who adjudicates whether your employer owes you a remedy for an injury you suffered at work? Who fights wars on your behalf? Who has the power to keep you in prison if you commit a felony? Who determines the health care treatments for which you can claim public reimbursement? Who, when you need them, provides you with welfare services? Who decides whether you can sell or buy that product, drink that water, or eat that food?
As a citizen of one of the many professedly liberal and democratic states in the world today, you would likely answer that it is “the government” of your country that does all these things. Your answer would not be wrong, per se, but it would be incomplete. What is “the government” nowadays? In some states, although government treasuries pay the majority of funds for education, a significant part is paid by private philanthropic sources that the government itself incentivizes through tax breaks. For example, the Bill and Melinda Gates Foundation—a private corporation—donated about $2 billion between 2000 and 2008 to open or improve 2,602 schools across the United States.
Governments today also increasingly outsource the fighting of wars to private military corporations—today’s version of the age-old mercenary. These corporations act under government authorization, through contract, but they are not part of the national army. During recent U.S. military operations in Iraq and Afghanistan, private contractors accounted for 50 percent of the total Department of Defense presence, on average. As for the United Kingdom, in 2006 there were twenty thousand private contractors in Iraq—three times as many as regular British soldiers.
Although states generally retain the final authority to determine who goes to prison, the power of imprisonment is increasingly exercised by for-profit corporations, rather than by public officers. Private prison officers judge when prisoners commit an infraction and when to impose punishment, and they provide advice to parole boards. Australia has the highest proportion of prisoners held in private prisons—about 18 percent of the total inmate population. Several countries across all continents are also engaged in prison privatization. The number of U.S. federal and state inmates held in private prisons increased from zero to almost 150,000 people between 1987 and 2001, and by another 56 percent from 2000 to 2013.
Can justice ever be achieved, and can democratic legitimacy ever be secured, in a privatized state?
What about access to health care and welfare? Although governments may fund most of these services, they also contract out to private corporations an increasingly large part of their provision, and with it the de facto authority to decide who should be eligible for these services. Some thirty-three thousand private U.S. organizations are under a total of some two hundred thousand government contracts for social services delivery, including education, health care, child care, and unemployment benefits. In some U.S. states, nonprofit organizations control up to 90 percent of overall social service delivery. Whereas until recently private actors had provided only particular services, today government outsources to such private actors the responsibility of running entire welfare offices. Similarly, since the 1990s, in Britain, so-called quasi markets, characterized by public funding and private delivery, have become very popular in the provision of both health care and education.
Finally, the food we eat, the water we drink, the products we buy and sell in the market, and the environment in which we live are often not directly regulated by governments. Rather, governments have delegated extensive regulatory authority to international private-sector organizations, and governments are often compelled to adopt the rules these organizations establish.
It is important to note that a privatized government is not the same thing as a smaller government. Even in the United States, the breeding ground of neoliberal “small government” advocates, government spending has substantially increased in the last decades, and the overall workforce employed by the federal government has also gone up. However, its composition and modes of operation have changed. While the number of civil servants has remained more or less unchanged, the number of private contractors has grown significantly. Private contractors in the United States amount to about 12.7 million employees, a number far greater than the sum of the federal civilian workforce, U.S. postal workers, and uniformed military personnel (4.25 million). In the meantime, contractual exchange has become the main instrument of governing, to the extent that the administrative state has been redefined as “the contracting state.” In sum, while government is morphing into a nexus of contracts with private actors, private actors are, in turn, morphing into government.
Even the strongest critics of privatization can reinforce its very logic, assuming that government is ultimately reducible to a provider of particular goods and services.
Government today is thus not what many intuitively think it is. And, certainly, it is very far from the picture we get of it from most books of political theory, or the history of political thought. Although elected lawmakers, appointed judges, and executive agencies are still an important component of many contemporary democratic governments, a large part of the practice of governing is outsourced to private institutions, whether these be for-profit or nonprofit organizations.
While historians still debate how and why this dramatic, if quiet, transformation of the mode of governing has occurred, there are urgent ethical and philosophical questions that must be addressed. Can justice ever be achieved, and can democratic legitimacy ever be secured, in a privatized state? What ethical considerations should guide debates about the expanding privatization of government? When is the use of private means for public ends morally objectionable, and why? Are there public functions that should never be delegated to private actors, even if by outsourcing them a government could achieve better results?
Although few would doubt the importance of these questions, political philosophers have paid relatively little attention to them. While increasing economic inequalities have led to a renewed concern with the distribution of private control over the means of wealth accumulation in the economy, not much has been said about the distribution of private control over what may be called “the means of governing.” Similarly, while much ink has been spilled in debating the implications for both justice and democracy of the growing concentration of political power at the global level, as manifested in the consolidation of new international institutions, little attention has been paid to the potential implications of the reverse phenomenon: the increasing dispersion of political power at the domestic level, through systematic processes of privatization and outsourcing.
Perhaps the most pernicious effect of privatization is that it erodes political legitimacy itself.
Recently, however, there has been a growing, yet confined, discussion on whether and when it is permissible for a government to delegate certain responsibilities to private actors. According to some, the answer ultimately boils down to a question of outcomes: to determine whether privatization is permissible, we just look at its results. Others contend that, even if privatization could facilitate the achievement of socially desirable goals, there are functions that we have strong reasons not to privatize, irrespective of outcomes. But both of these views miss what is arguably the most pernicious effect of privatization: it erodes political legitimacy itself.
• • •
Consider, as one example, the case of private prisons. The dominant view among economists, and also shared by some philosophers, is that whether prisons ought to be privatized exclusively depends on instrumental considerations. As some scholars put it, “the most controversial and interesting issues raised by private prisons concern the quality of service.” On the opposite end of the spectrum, there are philosophers who argue that the privatization of prisons is inherently problematic and should be avoided, even if it could facilitate the achievement of better outcomes. For some, the reason is that punishment inflicted by private hands is not punishment; it is violence. Insofar as managing prisons entails the imposition of sanctions on inmates, such functions cannot be delegated to private actors without compromising punishment’s own condition of possibility. For others, the problem is that it is always wrong to exercise coercive power merely for private gains. Since private actors are more likely than public actors to be motivated by such gains, and since prison guards exercise coercion over inmates, the privatization of prisons is inherently suspect. Other arguments against privatization build on considerations that are familiar from the literature on the moral limits of markets. Privatization, in this view, is a corrupting force.
But the framing of this debate is reductive, if not misleading. This is not only because the debate seems to rest, somewhat simplistically, on an all-or-nothing approach to the relevance of outcomes in the assessment of privatization decisions. Nor is it simply because many of the considerations that are relevant to determine the moral limits of markets cannot extend to privatization, since the latter need not involve the direct buying or selling of goods, and since privatization has often been conducted through nonprofit organizations, putatively outside the market. Rather, and more fundamentally, by presenting the problem simply as a question about the desirability or permissibility of transferring discrete functions to private actors, even the strongest critics of privatization, somewhat paradoxically, reinforce its very logic, which assumes that government is ultimately reducible to a provider of particular goods and services, on par with a business or charity, and thus ought to be evaluated as such by its citizens, customers, or beneficiaries.
Legitimacy is different from other values, including justice and efficiency, which concern either the substantive content of certain norms—for example, whether they are fair—or their expected benefits and costs.
This approach not only risks presenting privatization as a merely technocratic problem, rather than as a genuinely moral and political one. It not only fails to understand privatization for what it is: a broader transformation of the mode of governing and of the identity of government, rather than a particular policy. It also, and most importantly, leaves unanswered two fundamental questions. If private actors are morphing into government, can they act with the legitimacy that government claims? And can a government morphed into a network of private actors still govern those subject to its rules legitimately?
Asking whether a governing agent is legitimate is to ask whether that agent has the right to make and impose certain decisions on others, and whether the agent has the standing to make those decisions in a way that results in changing the normative situation (the rights and duties) of those subject to them. In this respect, legitimacy is relevantly different from other values, including justice and efficiency, which concern either the substantive content of certain norms—for example, whether they are fair—or their expected benefits and costs. This is not to say that legitimacy is the only value that matters. In cases in which privatizing certain responsibilities would lead to massive gains in terms of, say, distributive justice that could not be achieved otherwise, these gains may well override considerations of legitimacy and thus also the case for constitutional limits. But legitimacy should enjoy a certain priority. In many cases, we may have sufficient reasons to limit outsourcing even in the presence of some other gains.
Why start with a focus on legitimacy, rather than directly focusing on the overall consequences of privatization for, say, distributive justice or equality? To see why, consider the following scenario.
Imagine that a person you randomly encounter, call him Stuart, claims the right to determine what you owe as a remedy to a third party you allegedly injured, or the right to determine whether you are entitled to be publicly reimbursed for a surgery, or the right to force you to enter and remain in a closed space against your will. You would presumably think, and reasonably so, that Stuart is out of his mind. Even if Stuart was acting with good intentions and was substantively right in his determinations, and even if his determinations would likely generate desirable outcomes, including a more equal distribution of resources, Stuart would have no right to do what he claims to have the right to do. After all, who is Stuart to determine what you owe and what you are owed? Who is he to restrict your freedom? And, in any case, his actions would lack the moral power to change your normative situation—to impose new obligations on you or to determine what you are entitled to as a matter of justice. If backed by actual force, or by a credible threat of force, the imposition of such obligations would constitute a wrongful infringement on your freedom. Stuart’s willingness to be accountable to you for his actions would not improve the situation substantially. He could be disposed to provide reasons and compelling justifications for what he has done or would like to do, but he would still lack the appropriate standing to act in that way.
The ultimate wrong of privatization consists in the creation of an institutional arrangement—the privatized state—that denies equal freedom.
If a privatized system of government turns out to be akin to a system where private actors, precisely like Stuart, lack the legitimacy to do what a government should do, we would have strong reasons to at minimum significantly limit privatization, even in the presence of some improvements in terms of efficiency, distributive justice, or equality, and regardless of other corrupting cultural tendencies privatization may or may not have. For keeping things as they are, in such conditions, would not be much different from keeping a benevolent colonial order in power just because it is benevolent. Benefiting others is an insufficient ground for the right to rule over them.
Some might contend this is a false analogy. After all, unlike Stuart, within a privatized government, private actors are often authorized by a democratic government, generally through contract, to act on its behalf, and they can be subject to more or less strict forms of legal regulation and control by the principal. They thus seem to inherit, by transfer, whatever legitimacy government has. Privatization thus generates no special problem of legitimacy.
But this conclusion is premature. Political legitimacy does not simply require that those who credibly claim permission to define the content of our rights or duties, or to restrict our freedom through presumptively binding rules, be de facto publicly authorized to do so. They must also be validly authorized, an invalid authorization being no authorization at all. Call this the authorization condition on the legitimate exercise of political power. Further, in a democracy, the power to make decisions that change the normative situation of citizens, especially if discretional in nature, ought to be not simply authorized by the people but also exercised “in their name” and in a way that carries out their shared will. Call this the representation condition. Finally, those who are authorized to make certain decisions, or to perform certain functions, on behalf of a democratic government must have the capacity, both moral and factual, to do whatever it is that they are authorized to do. Otherwise, their actions, even if well intentioned, would end up falling outside of the proper domain of public authorization, with the result that they would amount to nothing more than merely unilateral determinations. Call this third condition the domain condition.
Privatization is not only an institutional transformation of governance, but also, and more fundamentally, a normative one. It represents a regression to the precivil state of nature.
In light of these considerations, whether a privatized government can be a legitimate government ultimately depends on (1) whether privatization systematically transfers to private actors the power and de facto authority to make decisions or issue rules that change the normative situation of citizens in a relevant sense, thus triggering concerns of legitimacy, and (2) whether private actors have the standing and the capacity to meet the above conditions on the legitimate exercise of political power. On (1) the answer is yes, and on (2) the answer is no.
What is ultimately wrong with privatization, then, is not—at least, not primarily—that it commodifies, thereby corrupting, the meaning or nature of some particular goods or purposes, nor that it makes the provision of certain intrinsically public goods impossible. Nor is it only the fact that privatization may embody an objectionable form of neoliberal rationality, or that private actors tend to be motivated by inherently objectionable, profit-making considerations, or are unaccountable in the sense of lacking transparency or being unresponsive to the political community. The ultimate wrong of privatization rather consists in the creation of an institutional arrangement—the privatized state—that denies equal freedom, understood not as mere noninterference but rather as a relationship of reciprocal independence. It does so by making the definition and enforcement of individuals’ rights and duties, as well as the determination of their respective spheres of freedom, systematically dependent on the merely unilateral will of private actors, whose standing turns out to be not much different from the one of Stuart.
• • •
Understood in this way, privatization is not only an institutional transformation of governance, but also, and more fundamentally, a normative one. It represents nothing short of a regression to the precivil state of nature, understood not in the Hobbesian sense of a state of ever-potential conflict, but rather in the Kantian sense of a normative condition of merely “provisional” justice, objectionable dependence, and unfreedom. Of course, in many democracies, unlike in the Kantian state of nature, the law still imposes limits on how private actors can exercise their discretionary powers, and the state, through its judicial system, retains a final say over private actors’ decisions. Still, the internal logic of privatization seriously undermines both the constraining power of public rules and the ability of states to exercise their adjudicatory authority through courts.
The internal logic of privatization seriously undermines both the constraining power of public rules and the ability of states to exercise their adjudicatory authority through courts.
One important way that privatization reproduces the problem of the state of nature within the state itself is by undermining the separation between public offices and private roles—a separation on which the modern, bureaucratic state was founded so as to obliterate the patronage dependencies that were legacies of the feudal state. In so doing, privatization turns the wheel back to a renewed kind of patrimonialism. This view both extends and inverts the story that Jürgen Habermas so eloquently told in his seminal book The Structural Transformation of the Public Sphere (1962). Habermas argued that the entanglement of public and private, state and society, in the nineteenth century led to a refeudalization of society, culminating in the destruction of the bourgeois public sphere—a space of critical and open exchange. Today, the ever-greater entanglement between public and private, brought about by processes of privatization since the late twentieth century, leads to a refeudalization of the state itself—a collapse between public offices and private loyalties, status and contract—that undermines the very rationale that justifies the existence of the modern state and the exercise of political power by its government.
This fact also illuminates a contradiction internal to neoliberalism itself. As an ideology, neoliberalism advocates a restoration of liberalism, understood as an era of limited government that putatively ruled before the era of the welfare state and social democracy. However, as a practice of governance, neoliberalism delivers the opposite: a renewed feudal order within which political power is increasingly exercised on the basis of privately negotiated obligations, nonpublic purposes, and, ultimately, unilateral determinations. Neoliberalism is thus inherently illiberal, insofar as it contradicts a view that is central to any possible liberalism: the idea that political power ought to be exercised in a public capacity and for public purposes alone.
The term “privatized state” thus carries two meanings. On the one hand, it is a descriptive characterization of a system of government in which the distinction between public offices and private contracts fades, and where the administration of the public is widely outsourced to private actors. On the other hand, it refers to a normative condition—a state—of objectionable dependence, where the determination and enforcement of people’s entitlements, and of the restrictions under which they can be free to act, is made systematically dependent on private and merely unilateral exercises of power, rather than on what Kant would call an “omnilateral”—that is, genuinely public and representative—will.
Any solution to the legitimacy problem will have to specify clear constitutional limits on the process of privatization as well as develop more robust democratic practices of public administration.
Given that privatization is wrong in these ways, what is the way forward? The solution to the legitimacy problem can be found neither simply in increasing the regulation of private actors nor in accepting the rigidity and inflexibility of an aging command-and-control public bureaucracy. Instead, any solution will have to specify clear constitutional limits on the process of privatization as well as develop more robust democratic practices of public administration.
The best way to secure constitutional clarity is to advance a new amendment that would constrain the privatization of public functions. But even beyond the Constitution, we also need to strengthen the legitimacy of public administration itself. This will certainly involve a sharper distinction between office and contract—the distinction that, in practice, privatization so insidiously undoes—but it should also demand a tighter integration between the democratic and the bureaucratic, by including participatory elements and forms of co-determination in the daily administration of public affairs. Only through a democratized bureaucracy can we inoculate against the wrongs of the privatized state.
Editors’ Note: This essay is adapted from THE PRIVATIZED STATE by Chiara Cordelli. Copyright © 2020 by Princeton University Press. Reprinted with permission.
While we have you...
… our world is in crisis. Our new series, Rethinking Political Economy, asks how we can build a new one. In essays such as this one, we explore alternatives to forty years of neoliberalism—reorienting public discussion away from a narrowly individualistic picture of society toward a vision of the common good. We propose new ways to think about the relationship between equality and democracy, paths to racially inclusive prosperity, the proper role of government in the economy, loosening the grip of economic power, and reviving investment in public goods—including decarbonizing the economy. Contributions from readers like you help keep our website free for everyone. If you support Boston Review’s belief in the power of collective reasoning, please consider joining us as a contributing reader. Make your tax-deductible contribution today.
November 24, 2020
18 Min read time