An editorial in today’s Herald-Dispatch (Huntington, WV) discusses privatization. It makes a couple pretty good points — the need for performance measures and strong contract oversight and management. However, one quote really got my attention: “Private sector contractors are in business to earn a profit — a reasonable and legal goal in most instances.” Since when did we have to quality profit as “reasonable” and “legal”? And in what instances does making a profit not legal? When did profit become such an ugly word that we have to start qualifying it? Digging deeper though, the author shows his misunderstanding of the profit motive that companies have. He starts by suggesting that privatization could lead to lower service because of profit. Companies have an incentive to keep customers happy — thus, they can’t skimp on service. Afterall, if they lose the contract (which they would for poor service) they don’t make anything. Further, in most cases, the profit motive also pushes the contractor to become a good corporate neighbor and lend a hand when a hand is needed. The author then lists a series of risks from privatization — corruption, low-ball bids, and disqualifiying other bidders — however, smart companies in the privatization arena don’t do what the author suggests could happen. Put simply before someone privatizes they generally look at company history and past performance. Again, the profit motive keeps companies from conducting business this way. If they develop a reputation for these shenanigans they won’t win new business. Sadly this skeptism and critical misunderstanding of profit is all over. PS – I wonder if the author realized that every critique he had about privatization has been a union tactic or result for decades? (poor service, corruption, using political power, asking for more and higher pay/benefits, strong arming a city, etc.)
Geoffrey Segal is the director of privatization and government reform at Reason Foundation, a nonprofit think tank advancing free minds and free markets. He is also editor of Reason's Privatization Watch.