The History of Privatization
How an Ideological and Political Attack on Government Became a Corporate Grab for Gold
The post-WWII era was a tough time for conservative economists, academics, intellectuals, and business leaders. Social Security, the Tennessee Valley Authority, the Securities and Exchange Act, and other New Deal programs represented a dangerous expansion of government’s role in the economy and society – nothing short of a frontal assault on freedom and the beginnings of socialism in the U.S.
Today, after 50 years of attack on government, privatization is a standard conservative response to tight public budgets, a key pillar of attacks on government, and a lucrative market opportunity for domestic and global corporations. Large corporations operate virtually every type of public service including prisons, welfare systems, infrastructure, water and sewer, trash, and schools. For example:
- Private prisons didn’t exist thirty years ago. Today, publicly traded, billion-dollar corporations are key players in prisons and immigrant detention. Privatized immigration facilities now house over two-thirds of all detained immigrants.
- In 1988 AFT president Al Shanker proposed a new idea: To create charter schools where teachers could experiment and innovate and bring new ideas to the nation’s public schools. Today, nearly 3 million children attend charters, and large corporate chains and billionaires are funding the rapid growth of privatized, publicly funded charters.
- Former defense contractors, IT corporations and publicly traded corporations are running welfare, food assistance, and other safety net systems in many states across the country.
- Today the federal government employs more than three times as many contract workers as government workers, and state and local governments spend a combined $1.5 trillion on outsourcing.
- Across the country, a well-established network of conservative think tanks, industry associations, investors and corporate lobbyists – The State Policy Network, ALEC, and others – are on the front lines developing privatization legislation and proposing privatization projects.
What follows is how that happened.
Austrian-born economist Friedrich von Hayek was the movement’s intellectual leader. His 1944 book, The Road to Serfdom, is considered to be the intellectual wellspring of anti-government, pro-market ideas and the privatization of public goods. The book was met with surprising success – with excerpts printed in Readers Digest and Look Magazine. It continues to be a significant influence on politicians, journalists, and business leaders. House Speaker Paul Ryan considers Hayek his intellectual guru.
Yet public support for government remained high throughout the postwar years as public services expanded and the economy grew. Hayek and his followers, therefore, were powerless to stem the continued growth of government activities throughout the 1950s. This began to change in 1962 with the publication of Capitalism and Freedom by economist Milton Friedman. Friedman was an effective promoter of two critical ideas: governments were just like markets and government was a public monopoly. Both of these became central arguments of privatization advocates in the 1970s and 1980s.
Friedman’s most important insight was that privatization didn’t necessarily mean cutting popular public services. The public still trusted and valued government programs; Friedman’s argument gave privatization advocates a new approach by making the distinction between government responsibility and government provision of public goods. You could put public services in the hands of private contractors while still maintaining the program. Friedman’s real agenda, though, was clearly about removing public responsibility as well. He called for the elimination of Social Security, the minimum wage, public housing and all national parks.
1970s – Turning Theory Into Action
Emanuel Savas is hardly a household name, but he’s been one of the foremost privatization advocates for four decades. He was the manager of urban systems at IBM Corporation and was a deputy city administrator from 1967 to 1972 under New York Mayor John Lindsey.
Savas published his first article on privatization in 1971, wrote a dozen books and countless articles on privatization, and is still a respected expert across the country. He serves on the editorial board of Reason Foundation’sPrivatization Watch, founded in 1976. Savas, as an on-the-ground city administrator, translated Friedman’s theory of government monopoly into a practical attack on the workings of city government.
Savas’ 1971 article, “Breaking Municipal Monopoly,” complained that the “monopoly nature of police, fire, sanitation [and transit] services has The History of Privatization:
