Morning Must Reads: One Bidder? What Could Go Wrong?

The Keystone Research Center does not oppose the use of private contractors to provide services to federal, state and local governments as a matter of philosophy.

On pragmatic grounds, we DO support good governance, including carefully assessing the costs and benefits of privatization. Too often privatization is a goal in and of itself and good governance — careful weighing of pros and cons — isn't even in the vocabulary of privatization advocates.

One of the most common reasons that privatization fails to deliver on up-front promises is the lack of competition in the private sector. Lack of competition likely helps explain why our study of school bus privatization found that privatization raised the total costs of school transportation services. Especially in more rural areas, even when school districts competitively bid school bus contracts, they may only receive one or two bids. The result can be that you trade a public monopoly with a mission aligned with the public good for a private monopoly the mission of which is to maximize profits.

In the school bus case, taxpayers not only pay more for transportation services: schools also lose flexibility to adjust bus service to advance the district's educational mission (e.g., take students on another field trip). They lose flexibility because the private contractor may charge a lot more for any additional service not specified up front in the contract.

Academic research shows that increased costs to taxpayers and loss of flexibility to modify services to serve the public good are common problems with privatization. They help explain why researchers often find that privatization is a bad deal for the public. (Columbia Professor Elliot Sclar, for example, has written extensively about privatization.)

Given the history and research on privatization, it is troubling that the Corbett administration appears to have only one qualified bidder for its proposed privatization of Pennsylvania's lottery system. That is a set up for a bad deal that hurts taxpayers.

In other news, Eduardo Porter has an interesting column this morning urging policymakers to tackle inequality. I would add that upwards of 80% of U.S. workers are employed in non-mobile service jobs (jobs that can't relocate because they have to be near their customer). The claim that globalization is driving stagnating or falling wages in non-mobile services doesn't really add up. In our view, the challenge in the non-mobile service sector (think retail, hotel, janitorial, education, health or child care workers) is that workers today have less bargaining power and the minimum wage is lower today than it has been in decades. A simple way to reduce high levels of inequality today would be to gradually raise the minimum wage to $15 per hour and give workers a real right to create area-wide unions in non-mobile services (unions similar to what exists in the building trades).

Two related numbers capture the nature of our economic challenge: one is $3,837, which is how much the annual income of the typical middle-class family shrank from 2000 to 2010. The other is 17.42 percent, the slice of national income captured in 2010 by the richest 1 percent of the population. That is more than twice the share they reaped 30 years before.

Porter's column leads us to recommend that you read Mike Konczal's latest on what's next for the liberal economic project. Konczal organizes the column around a solid framing provided by sociologist Lane Kenworthy. 

One useful way of thinking broadly about what the welfare state should provide comes from Lane Kenworthy, a sociologist and political scientist at Arizona State University. According to Kenworthy, the welfare state should accomplish three things: It should act as a safety net, providing a basic level of security for the poor and protecting citizens from sharp declines in income or unanticipated expenses; like a springboard, it should create opportunities for upward mobility; and, like an escalator, it should ensure that living standards rise across the board as the economy grows. Below are ways that liberals could fix the holes in the current safety net, expand opportunity, and make sure a growing economy benefits everyone.


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