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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]. [...]

Why Is Louisiana The Prison Capital Of The World? Police Profit By Keeping Private Prisons Full

by on Tuesday, May 15, 2012 at 5:18 pm EDT in Economy, Justice System, Politics

The $182 million private prison industry in Louisiana thrives from a system rife with conflicts of interest, not unlike the kinds found in the most corrupt third world countries. According to a scathing article this Sunday in The New Orleans Times-Picayune, the very people entrusted to enforce the law in the state have deep financial ties to the for-profit prisons, which house a majority of all Louisiana inmates.

The article states that “most prison entrepreneurs happen to be rural sheriffs,” and the “prison business model is built on head counts.” 

In the early nineties, prison overcrowding had become such a massive problem for the state, that the cash-strapped government decided to forego building new state prisons, and instead encouraged sheriffs to pay for private prison construction. In return, they would, of course, enjoy a cut of all future profits. “The financial incentives were so sweet, and the corrections jobs so sought after, that new prisons sprouted up all over rural Louisiana.”

Two decades later, this now-entrenched private prison system has helped to double Louisiana’s prison population. In fact, the state wins the distinction of imprisoning more of its residents than any other legal jurisdiction on the planet.

Despite Louisiana having the highest murder rate in the country, it surprisingly “has a much lower percentage of people incarcerated for violent offenses [when compared to the national average], and a much higher percentage behind bars for drug offenses [when compared to the national average] …”

Why, you ask? Because violent criminals (murderers, rapists, armed robbers, etc) get sent to state prisons, whereas the non-violent offenders are housed at private ‘for-profit’ prisons. The sheriffs therefore have a financial incentive to find and charge non-violent offenders.

According to another recent article in the Times-Picayune, “more than half of Louisianians sentenced to state time are in the custody of local sheriffs, who must keep their prison beds full to turn a profit.” And the sheriffs are a powerful lobby force to be reckoned with. They often move to block all legislative attempts to reduce sentences for non-violent offenses, or for “shaving time” for inmates with good behavior.

But the profiteering goes even beyond the sheriffs. Sunday’s article describes the entire judicial system as being in on ‘the take’:

“You have people who are so invested in maintaining the present system — not just the sheriffs, but judges, prosecutors, other people who have links to it,” said Burk Foster, a former professor at the University of Louisiana-Lafayette and an expert on Louisiana prisons. “They don’t want to see the prison system get smaller or the number of people in custody reduced, even though the crime rate is down, because the good old boys are all linked together in the punishment network, which is good for them financially and politically.”

Even townships profit off the private prison industry, by charging them exorbitant fees to operate within their town borders. Some of the smallest rural towns in Louisiana are leasing their ‘prison rights’ to sheriffs and private companies for hundreds of thousands of dollars per year. And these prisons bring much-needed jobs to the townsfolk, who line up to become correction officers.

One of the biggest prison magnates in all of Louisiana, incidentally, happens to be an ordained minister, who has become filthy rich off of incarcerating his fellow citizens. 

The task of putting bodies in private prison cells now impacts the livelihoods of many important people. Wardens and sheriffs work hand-in-hand, daily, to ensure the profits continue unabated:

Today, wardens make daily rounds of calls to other sheriffs’ prisons in search of convicts to fill their beds. Urban areas such as New Orleans and Baton Rouge have an excess of sentenced criminals, while prisons in remote parishes must import inmates to survive.

The more empty beds, the more an operation sinks into the red. With maximum occupancy and a thrifty touch with expenses, a sheriff can divert the profits to his law enforcement arm, outfitting his deputies with new squad cars, guns and laptops.

To fatten profits, inmates in these private facilities are offered little, if any, rehabilitation. Because “putting people in cells” is merely half the equation to this business model. Once they’ve found someone to incarcerate, spending as little money as possible on him becomes the next priority. In Louisiana, each inmate in a private prison fetches $24.39 a day in state money. The ones in state prisons fetch $55 a day. 

This means the most violent criminals (housed at state facilities) — many of whom are incarcerated for life — take vocational classes, and prepare for careers they will never have, like auto mechanics, plumbing, electrical, welding, etc.

Non-violent criminals, on the other hand — sentenced for things like drug possession, theft, etc. — will get sent to a private prison where they will do little more than sit in an overcrowded 80-man cell for months or years on end, gaining no skills that might prepare them to qualify for law-abiding work upon release.

And though sheriffs would like to keep them locked up indefinitely, most of these non-violent criminals will eventually be released back into society. On their release date, they will reenter the community with a criminal record and no new vocational skills (making it virtually impossible to find a job), as well as ten dollars and a 1-way bus ticket from the prison.

This, of course, helps to ensure they return as repeat offenders — the bread and butter of this insidious business.

“Job Creators” & “Investors”: The Disconnect Between Republican Policies & Economic Stimulus

by on Monday, March 7, 2011 at 11:03 am EDT in Politics

Rep. Darrell Issa (R-CA)The Republican Party’s latest economic policy proposals are nothing short of pure unadulterated neo-liberalism — the radical merciless ideology foisted upon the world by economist Milton Freedman. Recent events throughout the country have been playing out like a chapter straight out of Naomi Klein’s hugely important bestseller, The Shock Doctrine.

First the tax cuts for the wealthiest 2%, then the calls for deregulation, union-busting, and privatization; followed by — surprise! — severe austerity measures. These policies, if fully enacted, will accomplish little more than transferring trillions of dollars to the wealthiest individuals and corporations, and in doing so crushing the lives of average Americans.

Any ‘trickle down’ effects yielded from extending Bush tax cuts for the wealthy — which added nearly a trillion dollars to our national debt — would have been negligible at best. But they will literally be jack-hammered to oblivion if followed by the Republican-proposed Draconian measures.

Their calls for deep spending cuts in the public sector (both at Federal and State levels) will translate into whittling away all safety nets for America’s elderly and most vulnerable, while issuing pink slips for teachers, cops, firemen, postal employees, librarians, etc.

Instead of paying teachers to educate our children, and cops to fight crime, taxpayers will instead be writing their unemployment checks. That is, until Republicans can finally figure out a way to terminate unemployment insurance as well. Meanwhile, our national infrastructure continues to crumble beneath our feet.

And their proposals do absolutely nothing to stimulate the economy. Unless you believe that sacking public workers will magically reduce unemployment, and somehow stimulate consumer demand (the driver for economic expansion).

Rather than subjecting lower and middle-income Americans to severe austerity measures, our economy would be best served by doing the very opposite. Policies that help to improve the financial bottom-line for struggling Americans guarantees an economic spark, if only because these Americans have little choice, but to spend every last dollar they make on necessities (i.e. they put ALL of it right back into the economy).

Unlike lower and middle-income Americans, the wealthy have the luxury to hoard each and every penny netted from their tax cuts. And few of them will be enticed to invest in a recessionary environment where risks are abnormally high.

How many millionaires are out stimulating the economy right now by purchasing third or fourth homes here in the U.S., when economists are now forecasting a double dip in home prices? How many are considering starting up new businesses, dependent upon consumer spending, when consumer bankruptcies just hit a 5-year high?

For wealthy individuals who do choose to invest, many will wisely target foreign companies, foreign mutual funds, foreign real estate, and multinationals who do business where economies are still growing. In other words, the ‘trickle-down’ part of Republican economic policies will actually occur in China, India, and elsewhere.

The supply-side ideology is based upon a faulty and outdated model that conveniently ignores competition for investment dollars overseas, and is largely dependent upon exaggerating the discretionary spending behavior of the wealthy.

As for corporate tax laws, two-thirds of all U.S. corporations dodged paying a single penny in taxes between 1998 and 2005. And how did these corporations repay the favor? By shifting their labor investments overseas, to countries where the cost of labor is extremely low, and where few if any environmental protection laws exist.

Cisco just released their international salary report showing that the average annual salary of their technical professionals in India ($14,508) is just 1/4 of what their American counterparts make ($62,993). And yet their Indian employees work 56 hours per week, on average – that’s 25% more hours than their American counterparts (45 hrs).

To rub some serious salt into the wounds, the Wall Street Journal recently reported that U.S. corporations (not even including Wall Street Banks) were sitting on close to $2 trillion in cash — the highest corporate cash reserves in over 50 years! — and still refuse to hire in the United States:

Rather than pouring their money into building plants or hiring workers, nonfinancial companies in the U.S. were sitting on $1.93 trillion in cash and other liquid assets at the end of September, up from $1.8 trillion at the end of June, the Federal Reserve said Thursday. Cash accounted for 7.4% of the companies’ total assets—the largest share since 1959.

The cash buildup shows the deep caution many companies feel about investing in expansion while the economic recovery remains painfully slow and high unemployment and battered household finances continue to limit consumers’ ability to spend.

Yet, Republicans contend we must deregulate our industries further to help corporations cut their costs — at the expense of the environment and consumer protections — and desist from demanding they pay their fair share in taxes — all so that they will have the money they need to “create jobs”.

NO informed American — outside of wealthy individuals and corporate profiteers — could possibly support the Republican Party’s economic policies.

Which begs the question: how does a political party, which serves only the interests of its wealthiest contributors, continue to successfully legislate policies that work against the very interests of the American people?

Since their ideology is unsupported by the facts, they hire “word doctors” who coin misleading phrases to be repeated over and over again. Phrases that are both simplistic and somehow ‘intuitive’ to a non-discerning public.

This has remained their tried and true method for selling destructive economic policies to the American people. Take Frank Luntz, probably the most famous of all conservative “word doctors”. He coined the phrase “government takeover of healthcare”, which became the talking point for the Republican Party during the health care reform debate. It helped spur the Tea Party into storming Democratic town hall meetings during that period — terrified that “Marxists” were coming after their Medicare.

Their current economic play-script is inundated with two phrases: “job creators” and “investors” — to be used in place of “corporations” and “wealthy individuals”. These phrases — more or less the equivalents of “fair and balanced” being used to describe Fox News ‘reporting’ — are now the cornerstone of the entire Republican economic policy narrative.

Take Rep. Darrell Issa (R-CA), the Chairman of the House Committee on Oversight and Government Reform. Virtually every sentence that comes out of his mouth includes the phrase “job creators”. Check out his Twitter account and count the tweets where he reiterates the phrase “job creators”. In fact, he created a website called AmericanJobCreators.com where he asks “job creators” to tell him what kinds of consumer protection regulations he should dismantle on their behalf.

The guy is a corporate lobbyist’s wet dream.

And our obsequious President — instead of showing leadership on this issue and dismantling this fictitious narrative — first capitulated on extending Bush tax cuts for the wealthiest 2%, then capitulated to Issa back in January on the argument that deregulation helps create jobs. In doing so, he legitimized what he knows to be untrue, making it next to impossible for his party to now push for MORE regulation and RAISE taxes on wealthy corporations and individuals without immediately being branded as hostile to “job creators”.

The Conservative Party in Canada, having noticed the success their Republican counterparts across the border were having with this “job creators” phrase, quickly employed it as their own anti-tax slogan.

But make no mistake about it. Our current economic plight was created by:

  • Bush’s deregulatory policies leading to a financial meltdown, and the ensuing AIG and TARP bailouts.
  • Bush’s misleading us into unnecessary & expensive wars.
  • Bush’s granting the wealthiest 2% nearly $3 trillion in tax cuts over the last decade.
  • Two-thirds of all corporations having evaded paying a single penny in taxes from their trillions in profits over the last decade.
  • Corporations having moved our higher paying jobs overseas to low-cost labor countries.

It is not due to a lack of investing capital by cash-hoarding, tax-evading corporations and the wealthiest 2% (the so called “job creators”) — which remains the Republican rationale for cutting taxes and deregulation.

Yet, somehow the lives of the rich and powerful keep getting easier — more comfortable — while the burden for the reckless calamity they unleashed on this country slowly, but surely — thanks to a combination of an emboldened right-wing and a compliant, timid President — gets shifted onto the backs of the American people in the form of harsh austerity measures.

Milton Friedman’s legacy continues to haunt us.