The Privatization of Public Services

    Perhaps an addition to a previous post, The Application, Not the Idea, this post is a reflection on the shortcomings of privatization. There can be no doubt that for some systems in our society, privatization can be good and productive. Yet others are clearly best served by remaining in public hands. Systems that are unnecessarily privatized can lead to disasters and backlogs like we have all witnessed in Texas over the past week.
    Both our country and the world have been well served with privatization. While it is debatable whether advancements would have ever come, had R&D remained in public hands, the current history is clear. Privatization has allowed for enormous advancements in public health, technology, industrialization, and market efficiencies. The very act of privatization incentivizes technological advancements, decreases in pricing to benefit the consumer, or a mix of the two. This results in more widespread prosperity, growth, jobs, and technological advancement. It has also led to growth in wealth. While it does disproportionately favor the top earners, household incomes have increased by 49% since 1970 (adjusted for inflation). But as the previous words have hinted, privatization needs to be introduced to the right systems to gain the advantages of capitalism. This means a competitive market filled with customers able to freely choose between products based on price and quality. If any of these factors are lacking, the system is unlikely to benefit from privatization.
    The nature of the system often indicates whether or not it would benefit from the introduction of a capitalistic model. The power grid in Texas is a perfect example of the drawbacks a traditionally public system can suffer when completely privatized. In 1990, Governor George W. Bush signed into law the state’s electrical grid to “a market-based patchwork of private generators, transmission companies and energy retailers.” The goal was two-fold: lower energy prices for consumers and scratch the general inch of “independence” that makes Texas Texas. Generally, both goals were achieved. Though it is important to note this was largely due to an average of about 12 million cubic feet of natural gas production per year. When this law was passed, private companies did what they do: cut costs, increased efficiency, and made decisions based on the most economical probabilities. What were the chances of a colds nap crippling the grid in Texas? About once in a decade, which translated to not making the investment for those companies. Had their power grid been a part of the overall federal power grid, they would have been required to. But the pursuit of independence and lower prices led to an essential system becoming a capitalistic system. Reports of Texans facing more than $15,000 in energy bills isn’t some fluke of the system, it is precisely how a capitalistic system works: demand skyrocketed without supply responding leading to higher prices. Yet current Texas Governor Greg Abbot suddenly called on the state legislature to ensure “Texans do not get stuck with skyrocketing energy bills”. The energy grid is one of those systems that should not be completely free from regulation, nor should it have the ability to ignore commonsense retrofits in order to maximize profits. These are one of those essential systems that must continue to be held, at least partially, in public hands.
    Texas faced a very similar issue in 1989, and again in 2011. Each time, the companies had decided to avoid complying with regulations with the rallying cry of “socialism” and “keeping costs low”. Unfortunately, it is likely these disasters will escalate in frequency and severity as climate change continues to worsen. Now is the time for bold action on the part of the Biden administration and the American public at large. The systems in place that generally serve the public should not be allowed to pursue profits over people. Economics aside, there are some things that should not be profited on. Heating your home is one of those things.

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