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The Most Unforgivable Of Bush’s Legacies: The Privatization Of The Public Sector

by on Thursday, October 11, 2012 at 2:39 pm EDT in Economy, Politics

Perhaps the most harmful of all of George W. Bush’s legacies — and there were many — was the gains he made in transforming our public sector into a private one that enriches itself off taxpayer dollars. After his unparalleled successes on this front, the conservative movement has once again made privatization the central component of its platform.

Just months before invading Iraq, Bush made a bold move to revolutionize the way the United States government runs its core responsibilities. He drafted a new order to begin outsourcing much of its essential functions to the private sector:

On November 19, 2002, the White House Office of Management and Budget placed a notice in the Federal Register proposing that 850,000 federal “Full-Time Equivalents” could just as well be performed by private companies. As the notice points out, those 850,000 amount to half the current federal workforce. The Administration told The Washington Post that it has a goal of reaching the 15 percent mark by September 30, 2003.

All federal agencies must now “justify, in writing, any designation of government personnel performing inherently government activities.” Other positions will then be considered potentially “commercial,” or “a recurring service that could be performed by the private sector.” These major changes took effect on May 29.

This effort ushered in an era of unprecedented profiteering by federal contractors. According to a 2011 POGO study, “approximately one-quarter of all discretionary spending now goes to service contractors,” and contractors now outnumber federal workers nearly 4 to 1:

Since 1999, the size of the federal employee workforce has remained relatively constant at about 2 million, while the contractor workforce has increased radically – from an estimated 4.4 million to 7.6 million in 2005.

Having chosen Halliburton’s CEO Dick Cheney as his Vice President, Bush & Co. set out to redefine what constituted ‘military personnel’. The Bush Administration outsourced a significant portion of U.S. military operations to for-profit corporations. They then bequeathed these war profiteers with two simultaneous wars worth hundreds of billions of dollars in no-bid contracts.

And despite a change in U.S. leadership in 2008, Obama has continued to follow Bush’s lead in privatizing the U.S. military. In fact, at the same time Obama withdrew U.S. troops from Iraq, he began to replace them with military contractors.

A new Time Magazine story reveals that today there are more for-profit contractors in Afghanistan than U.S. troops. The most recent quarterly contractor census report states there were a whopping 137,000 private contractors working for the Pentagon in Iraq, Afghanistan, and 18 other countries in the region. This number doesn’t even include all the thousands of for-profit contractors outsourced by the State Department. To give an example, the State Department is itself paying for approximately half of the 13,500 private contractors now serving in Iraq.

Moshe Schwartz, from the Congressional Research Service, told a congressional hearing last month:

According to DOD data, from FY2008-FY2011, contractors in Iraq and Afghanistan represented 52% of the total force, averaging 190,000 contractors to 175,000 uniformed personnel. Over the last five fiscal years, DOD obligations for contracts performed just in the Iraq and Afghanistan areas of operation ($132 billion) exceeded total contract obligations of any other U.S. federal agency. 

Privatization is sold to the American people under the pretense that for-profit corporations can perform these jobs cheaper and more efficiently than the government. This has panned out to be an absolute falsehood.

The POGO study revealed American taxpayers are paying a steep price for the outsourcing of government jobs to for-profit contractors:

[T]he government pays billions more annually in taxpayer dollars to hire contractors than it would to hire federal employees to perform comparable services. Specifically, POGO’s study shows that the federal government approves service contract billing rates – deemed fair and reasonable – that pay contractors 1.83 times more than the government pays federal employees in total compensation and more than 2 times the total compensation paid in the private sector for comparable services.

Yet, despite taxpayers being billed twice as much per-worker by these contractors, the actual workers themselves often make less in income than federal workers. The study suggested, as you may have guessed, this was due to corporate profits and executive compensation. 

Despite the fallacy in the underlying arguments for privatization, the current economic crisis coupled with huge state and federal deficits have now put privatization in play across the nation.   

One successful tactic conservatives have been using to engineer their privatization agenda is to champion legislation that imposes harsh measures on cherished public institutions, making them obscenely expensive, thereby ensuring their eventual failure.

It is a way of manufacturing a problem that can then be recast as ‘proof’ of government inefficiency — an unfair burden on our ‘overtaxed’ citizenry. In this way conservatives can claim the ‘high ground’ as if they are merely injecting ‘fiscal conservatism’ into the debate on runaway deficits — ones which they themselves manufactured.

Take Bush’s Medicare Modernization Act of 2003. It gave pharmaceutical corporations a free pass to loot Medicare, and with no offsetting tax hikes or spending cuts, thereby ensuring the program would become an instant drain on the national deficit:

The Medicare Modernization Act of 2003 offered prescription drug coverage, but exclusively through private companies. Bizarrely, it prohibited the government from negotiating price discounts from the drug companies. As a result, Medicare Part D drug prices are more than 80 percent higher than the prices negotiated by Medicaid and Veterans Affairs.

One important but obscure component of the Medicare Modernization Act will soon come to haunt us. And that is the creation of an arbitrary 45 percent general revenue cap, which, when reached, will trigger program cutbacks, higher premiums or further privatization. Medicare financing comes from various sources including general revenue, payroll taxes, trust fund interest, and beneficiary premiums. The cap has yet to kick in, but the drug company giveaway was funded mostly through general revenue, so it will come soon. 

And after years of corporate looting of the American taxpayers — enabled by these kinds of bills — the general consensus among our political elites now seems to be that we can no longer afford to maintain this hugely popular government program.

A ‘Grand Bargain’ — supported by Obama — must now be struck that will make painful but ‘necessary’ changes to the program. These ‘pains’ will undoubtedly be imposed on our senior citizens, living on fixed income — never the profiteers. And this forthcoming ‘Grand Bargain’ will only degrade Medicare benefits in a way that will chip away at the program’s popularity, and before long it will become ‘necessary’ and perhaps more politically feasible to completely overhaul it into a voucher program, which will further enrich price-gouging healthcare corporations.

A similar measure was passed to ‘manufacture a default‘ of the U.S. Postal Service. It mandated that USPS — the only self-funding government program — begin pre-funding benefits of future retirees up to 75 years in advance. This is “a burden no other government agency or private company bears.” And low and behold, one of the key architects in manufacturing the USPS crisis, Peter Orszag — from the Neoliberal-Rubinite wing of the Democratic establishment — now insists the USPS should be privatized.

In some ways, this is not dissimilar to the looting and bankrupting of small businesses by the mafia. As portrayed in the movie Goodfellas, members of the Lucchese crime family muscled a foothold into a neighborhood restaurant. The first thing they did was max out the restaurants’ available credit (with no intentions of repaying it) by ordering truck-loads of liquor and goods — not to be sold in the restaurant, but instead carried out the backdoor and sold elsewhere. Once the restaurant had been bled dry of all its credit and goodwill, they proceeded to torch the building and profit further from the owner-on-record’s insurance payout.

Another tactic conservatives have long used is based upon Milton Friedman’s infamous shock doctrine blueprints, as was meticulously documented in Naomi Klein’s The Shock Doctrine: The Rise of Disaster Capitalism. A conservative Louisiana legislature capitalized on the shock and horror generated by hurricane Katrina’s destruction by quickly seizing and then privatizing New Orleans’ public school system when the residents were too shell-shocked to know what was happening:

While many in New Orleans have waited two years for recovery, the restructuring of its schools seemed to happen overnight.

Not long after Hurricane Katrina flooded New Orleans two years ago, the Louisiana legislature cleared the way for the state to assume control of 107 out of 128 schools in the Orleans district. Immediately, the state began converting many of its newly acquired schools to charter schools–publicly funded schools run by for-profit or nonprofit groups that operate by a “charter,” or contract. One result is that the number of unionized teachers dropped from about 4700 to 500.

Corporate investors are literally salivating at the profit-potential in privatizing public school systems. The U.S. currently spends more than $500 Billion in K-12 education, and the “entire education sector, including college and mid-career training, represents nearly 9 percent of U.S. gross domestic product, more than the energy or technology sectors.” More and more private for-profit management companies, across the nation, are being granted full control of public schools to then be funded by public tax dollars.

Privatizing prison systems is another growing industry in the U.S., a country that accounts for only 5% of the world’s population, but incarcerates 25% of the the world’s prisoners. Louisiana — as it did for privatizing public-education — happened to be one of the original pioneers in privatizing prison systems. In the early 1990s, due to recessionary budget constraints, the conservative legislature allowed the very ones entrusted to fill the prisons — the Sheriffs themselves — to become prison owners and to profit from maintaining low prison cell vacancies. Not surprisingly, Louisiana now imprisons more of its residents than any other legal jurisdiction in the entire world. 

Similar efforts to privatize public works have continued across the nation, and across every public sector from toll roads (where toll rates instantly skyrocket after the transfer) to water infrastructure. Florida Governor Rick Scott — aligned with the Tea Party — has been one of the most aggressive in championing this agenda, as he has pushed to privatize the state’s Medicaid program, its public schools and its prisons

It should probably come as little surprise that upon reflecting back on his Presidency in 2010, Bush revealed his biggest policy failure was his inability to privatize social security.

Privatization ultimately leads to a deterioration in the quality of life of a nation’s citizenry. After all, these goods and services had been placed under the custody of the government for very good reasons. Often they were deemed too vital to the overall welfare of the general public (i.e. education, police forces, Social Security, Medicare, Medicaid, military, water, roads, regulatory agencies) to be put into the hands of corporations whose only mission is to maximize profits.

Often it is due to a uniquely inefficient marketplace, such as a marketplace with insufficient competition where price-gouging is all but guaranteed (e.g. unregulated monopolistic utility companies could charge whatever they want).

Other times it is due to inherent conflicts-of-interests, such as when Sheriffs or judges are permitted to own prisons with a profit-incentive to keep them full — i.e. an incentive to arrest a lot of citizens and keep them locked up indefinitely.

What is most alarming about what is happening is that some of it is virtually irreversible.

Sure, the government can always stop outsourcing its core responsibilities to contractors, but when you’ve outsourced your essential government functions, you ultimately outsource your own expertise and talent pool to others, thereby making yourself dependent upon them.

And just try and re-Nationalize public assets — local utility companies, water works, roads, prisons, school systems, the USPS, etc. — after they’ve been sold off to private investors. In Capitalist nations such as the U.S., that gets branded as a ‘government takeover’ or even a ‘Socialist revolution’, and Wall Street, which pulls the levers in Washington, would likely threaten the country with a flight of investment capital.

Or try to achieve what FDR did, but in today’s political climate where moneyed interests own our politicians: try and recreate new Social Security, Medicare or Medicaid programs should the current ones become privatized or dissolved.

Privatization tends to occur when governments find themselves in desperate economic climates. Profit-drooling vultures begin to circle these governments’ highly valuable assets — potential cash cows that are vital to the public interest — and due to political cronyism, they can often be had on the cheap. It is how oligarchs solidify their control over, and their exploitation of, the general public.

The United States now finds itself in one of these moments, and Neoliberals are determined to pick its bones clean.

UPDATE:

From Salon (THURSDAY, OCT 11, 2012) on the privatization of regulatory agencies, in this case the FDA: 

“According to an investigation from Bloomberg Markets magazine released Thursday, the growing privatization of food inspection has led to severe failures in oversight and has caused millions of Americans to fall sick” [and many to die]. […]

A Case For Scrapping Drug Patent Monopolies As Incentive For R&D

by on Monday, August 8, 2011 at 2:59 pm EDT in Healthcare, Politics

It is widely accepted across the gamut of economic ideologies that when a monopoly exists a free marketplace becomes inefficient and fails. It fails, because without competition, a monopolist is all but guaranteed to price-gauge consumers. So it’s no wonder that US anti-trust laws were written to safeguard the marketplace from monopolistic (anti-competitive) behavior.

Yet, for over half-a-century, the idea that the pharmaceutical industry should somehow remain exempt from this monopolistic prohibition, has largely gone unquestioned. By being permitted to patent its medicines, BigPharma enjoys a monopoly in the marketplace for a fixed period (20 years or more per drug), where they are free to price-gauge consumers. 

The rationale behind drug patent monopolies rests upon the idea that without huge profits assured by this 20+ year price-gauging period, these pharmaceuticals would lack the incentive to invest in costly research and development. In addition, the actual manufacturing of medication tends to be cheap, so without patent-protection would-be-competitors, unburdened by R&D investments, could easily sell many generics for as low as $10 per prescription. 

And thus, the drug patent has been widely accepted as a necessary evil.

But by choosing patenting as the preferred incentive for private R&D investment, the government is knowingly handing ‘for-profit’ corporations monopolistic licenses over vital consumer products. 

We are not talking about discretionary goods, here — music downloads, books, or software — which people can live without. We’re talking about medicines that often keep people alive, or help to lessen their pain and suffering. In other words, the consumer CANNOT DO WITHOUT many of these products. And the provider, being shielded from competition, is well-positioned to take full advantage of their desperation.

Which is why the Pharmaceutical industry consistently ranks as one of the most profitable industries in the United States.

In response to public outrage over the fact that drug prices consistently rise at a much faster pace than the rate of inflation, the Congressional Budget Office (CBO) conducted a study in 2006 to assess the industry’s R&D expenses.

The study revealed that Federally-funded research has played a HUGE role in the discovery of nearly all new drugs released by the pharmaceutical industry. In fact, the only industry that receives more Federal subsidies for R&D is defense.

Here were some of the CBO’s findings:

  • The federal government expended $25 billion on health-related R&D in the previous year alone (2005). 
  • “Most of the important new drugs introduced by the pharmaceutical industry over the past 40 years were developed with some contribution from public-sector research.”
  • “Out of 21 of the most influential drugs introduced between 1965 and 1992, only five were essentially developed entirely by the private sector.”
  • “In the past decade, federal outlays on health-related research and development have totaled hundreds of billions of dollars at the National Institutes of Health (NIH) alone.”
  • R&D costs for new drugs are usually low, because more often than not, they are merely incremental modifications of already existing drugs.

CBO reported that the amount BigPharma itself contributes towards R&D is a staggering $800 million (2006 dollars) on average per drug release. However, CBO pulled these numbers from a separate study conducted by Tufts Center for the Study of Drug Development, which happens to be financed by — you guessed it — BigPharma itself!

In fact, a recent study published in the journal BioSocieties, entitled “Demythologizing the High Costs of Drug Research,” by Donald W. Light of the University of Medicine and Dentistry of New Jersey and Rebecca Warburton of the University of Victoria, took a hard look at those Tuft numbers. And what they found were HUGE flaws (Note: some of the major flaws are summarized HERE at Slate) which dramatically inflated BigPharma’s R&D costs:

When Light and Warburton correct for all these flaws—well, all the ones that can be quantified—they end up with an average cost of bringing a drug to market that’s $59 million and a median cost that’s $43 million. In 2011 dollars, that’s a $75 million average and a $55 million median.

So the drug companies’ [last stated] $1.32 billion estimate was off, according to Light and Warburton, by only $1.265 billion.* Let’s call it a rounding error.

Therefore, it appears the only credible information that can be gleaned from the CBO study is the taxpayer-funded portion of pharmaceutical R&D, and it is HUGE (to the tune of hundreds of billions of dollars).

A 2008 study entitled “The Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United States,” published by the Public Library of Science, estimated that BigPharma spends nearly twice as much on advertising and promotion than it does on R&D expenditures, contrary to the industry’s claim. Their research reveals that the US pharmaceutical industry is in fact marketing-driven, despite its constant claims that it is research-driven.

In January, BusinessWire published “2011 Trends to Watch in Pharmaceutical Technology” which reported that BigPharma plans to cut R&D costs in 2011, by outsourcing their R&D operations to emerging markets, like China and India.  

The CEO of GlaxoSmithKline just announced he’s been aggressively closing R&D operations, and instead partnering with academic research centers (again, government funded) & biotech companies:

One of the more vocal voices in the changing R&D landscape has been GlaxoSmithKline (GSK) CEO Andrew Witty. His company has significantly pared down its fixed R&D costs by closing research facilities, doing less discovery work internally, and pushing more and more responsibility for research to external academic and biotech partners.

It’s the same familiar theme that has come to define much of corporate America: socializing much of the risks and costs, outsourcing the higher-paying technical jobs to low-cost-labor countries, privatizing all the profits, and then evading paying US income taxes (as this Bloomberg article highlights).

Except in this case, the government additionally grants BigPharma a 20+ year competition-free environment with which to fleece the American people, to the detriment of their wallets, their health and their lives.

The US obviously needs to find a new creative way to ensure that financial incentives for private R&D remains, but without granting corporations monopolist-licenses to harm the public. Drug patent monopolies make no economic sense, and have proven to be a resounding failure on every front.

A couple months ago, Vermont Senator Bernie Sanders proposed a major reform bill of the drug patent system that sounds like a winning strategy. The bill would essentially replace drug monopolies with prizes:

He has introduced a bill to create a prize fund that would buy up patents, so that drugs could then be sold at a free market price. Sanders’s bill would appropriate 0.55% of GDP (about $80bn a year, with the economy’s current size) for buying up patents, which would then be placed in the public domain so that any manufacturer could use them at no cost.

This money would come from a tax on public and private insurers. The savings from lower-cost drugs would immediately repay more than 100% of the tax.

The country is projected to spend almost $300bn a year on prescription drugs this year. Prices would fall to roughly one-tenth this amount in the absence of patent monopolies, leading to savings of more than $250bn. The savings on lower drug prices should easily exceed the size of the tax, leaving a substantial net reduction in costs to the government and private insurers.

This would help to bolster R&D investment, by ensuring these firms are handsomely rewarded with all-upfront payouts for their products, which they could then reinvest into their R&D operations. Their huge marketing budgets would evaporate, thus saving them the lion-share of their current expenses. And at the same time, it would inject competition into the drug manufacturer marketplace — essential for ensuring these products remain widely available and affordable to the consumer.

And equally important, it would substantially impact our nation’s runaway healthcare costs by reducing our $300 billion annual pharmaceutical expenditures down to $30 billion. This would help to shore up Medicare and Medicaid, save lives, and put more money back into the pockets of the American people.

Candidate Obama VS President Obama On Fixing Medicare

by on Tuesday, July 26, 2011 at 10:55 am EDT in Healthcare, Politics

On the campaign trail, CANDIDATE Obama was very specific on how he intended to fix Medicare:

1. To lower Medicare costs, Candidate Obama said he would permit Medicare to negotiate prescription drug prices with the price-gauging pharmaceutical industry:

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SEN. OBAMA: But one thing I have to say, we are not going to make some of these changes unless we change how business is done in Washington. The reason that we can’t negotiate prescription drugs under the Medicare prescription drug plan is because the drug companies specifically sought and obtained a provision in that bill that prevented us from doing it.

MS. WASHBURN: Thank you.

SEN. OBAMA: And unless we change that politics, we’re going to continue to see the waste that we’re seeing in the entitlement programs.

2. He would increase revenues by $300 Billion simply by ending Bush tax cuts for the wealthiest Americans, and use that to shore up Social Security and Medicare:

 

We’re not going to solve social security and Medicare unless we understand the rest of our tax policies. … Let’s be clear about my tax plan and Senator McCain’s, because we’re not going to be able to deal with entitlements unless we understand the revenues coming in. […]

Senator McCain wants to give a $300 Billion tax cut to — $200 Billion of it to the largest corporations and $100 Billion of it going to people like CEOs on Wall Street.

If we get our tax polices right so that they’re good for the middle class. If we reverse the policies of the last eight years that got us into this fix in the first place, and that Senator McCain supported, then we are going to be in a position to deal with Social Security and deal with Medicare, because we will have a health care plan that actually works for you, reduces spending and costs over the long term, and Social Security that is stable and solvent for all Americans, and not just some.

 So let’s see how PRESIDENT Obama fared in advancing his progressive platform for saving Medicare:

 1. Promise to allow Medicare to negotiate drug prices:

In August of 2009, the Obama Administration admitted to cutting a secret back room deal with Big Pharma which SPARED the wealthy drug industry from having to negotiate drug prices with Medicare. Obama, additionally, broke another promise by dealing away Americans’ ability to import cheaper drugs from Canada.

In return, the drug industry agreed to kick in $80 Billion in savings over ten years (a mere 2.6% of the $3 Trillion Americans are predicted to spend on drugs over that same time period), and the industry additionally agreed to toss Obama $150 million in television ads to sell his “health reform” bill.  

2) Promise to add $300 Billion in revenues by allowing Bush Tax Cuts for the wealthy to expire (which he would use to shore up entitlements): 

Now you might have expected, by the way Candidate Obama tied Bush Tax Cuts (as a source of revenue) directly to offsetting entitlement expenditures during his campaign, that he would have made entitlements the central focal point last December to make the case for allowing Bush tax cuts to expire.

But to the shock and dismay of his own party, Obama flipped on this campaign promise, quickly agreeing to extend Bush Tax cuts for the wealthiest Americans. And only THEN, after it passed — thereby ensuring there would be no additional revenues — did he moves on to addressing entitlement expenditures. 

His NEW PLAN For Fixing Medicare:

Here was Obama over the weekend, revealing his new — perhaps undisclosed would be a more accurate depiction? — plan for fixing Medicare, Social Security, and Medicaid:

Essentially, what we had offered Speaker Boehner was over a trillion dollars in cuts to discretionary spending, both domestic and defense. We then offered an additional $650 billion in cuts to entitlement programs — Medicare, Medicaid, Social Security.

Who the hell is this guy?

Karl Rove On Obama Extending Bush Tax Cuts: We’re All Supply-Siders Now!

by on Sunday, December 19, 2010 at 4:47 pm EDT in Politics, Tax Policies

The new tax cut bill, signed into law Friday by President Barack Obama, will surely come back to haunt him in his 2012 reelection campaign.  His quick capitulation to the Republicans, and aggressive advocacy for this fiscally irresponsible bill helps to further erode his credibility to one-time supporters. First came his health care ‘reform’ bill […]