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Private Doesn't Mean Better

By William Raspberry
The Washington Post
March 7, 2005

Remember the gag about "the three biggest lies"? They were: "The check is in the mail," "Of course I'll respect you in the morning" and -- the punch line -- "I'm from the government, and I'm here to help you."

Maybe it's time to add a fourth: "We're from the private sector, so naturally we'll do it better."

This last "biggest lie" has become a conservative mantra, a mystical incantation repeated not so much to explain as to make explanations unnecessary. Of course the private market will do it better -- whether the "it" is cleaning city streets, funding Social Security or staffing prisons.

Somebody got the bright idea that the private sector would do a better job managing health care for prison inmates. The New York Times, which undertook a year-long examination of one such company, Prison Health Services, reported several cases of inadequate -- sometimes fatally inadequate -- medical treatment of inmates and detainees because the private company had cut staff and services in an effort to keep costs down and protect its multimillion-dollar contracts.

A jail medical director, for example, cut off all but a few of the 32 pills a Parkinson's sufferer had been taking to keep his tremors under control. The patient-inmate died.

Stories abound of similar abuses in prisons operated by private companies -- many of them the result of attempts to hold down costs and boost profits.

The point is not that public correctional facilities are perfect -- only the foolishness of imagining that privatizing improves them.

Nor is it only conservatives who fall for privatization's big lie. One of my least favorite examples is in the liberal District of Columbia: the privatizing of traffic enforcement -- the dreaded red-light and speed cameras. A lot of people object to the fact that the cameras are hidden and, unlike a highly visible patrol car, don't give motorists a fair chance. My objection is to the fact that in the District and elsewhere, the cameras are owned and operated by private for-profit companies that issue and collect on tickets. The city managers like the cameras because they bring in more revenue than cops in patrol cars.

The system gives the companies an interest not in public safety but in collecting fines. Private isn't always better.

And yet people keep looking to privatization to improve everything from education (remember Chris Whittle's Edison Project?) to drug safety (leaving it to private lawsuits to drive dangerous medicines off the shelves).

Even Securities and Exchange Commission enforcement has gone private, albeit in a backdoor sort of way. Securities abuses that ought to be left to the SEC are increasingly being "prosecuted" by private lawyers through class-action lawsuits.

Several times a month, I get notices that a class of which I may be a member (because I once owned a few shares of some company or another) has won a class-action lawsuit. All I need to do is tell the lawyers (or the court) when I owned the stock. They will confirm my membership in the class and certify me for my share of the settlement.

Since I hardly ever know the answers to the questions they ask, I've been tossing the notices in the trash.

Big mistake? I asked Mary Malgoire, president of a Maryland financial planning practice called the Family Firm, what she does about these notices.

"We fill out the paperwork for our clients and submit it -- and, typically, it goes into a black hole," she said. She's had a few clients get back a little money -- "maybe a dollar, maybe 67 cents" -- but most never see any money at all.

She assumes, as I do, that the lawyers who bring these class-action lawsuits get compensated for their efforts.

Still, doesn't the fact that the misbehaving companies have to pay out a lot of money serve as a deterrent to corporate misbehavior? And doesn't that make the class-action lawsuit a useful form of nongovernmental law enforcement?

Well, not necessarily. As investment adviser Nathan Gendelman explained, the easiest lawsuits for class-action lawyers to win are those in which the companies have already been ruined by mismanagement. "The threat of a lawsuit in such cases probably doesn't change anybody's behavior, at least not in the way the threat of an SEC investigation might," he said. "The lawyers may get their fee, but the people who suffered the wrongdoing usually don't get much of anything."

Private isn't necessarily better.

willrasp@washpost.com
http://www.washingtonpost.com/wp-dyn/articles/A12641-2005Mar6.html