Teamsters

North America's Strongest Union

Privatization

How Teamsters Can Fight the Growing Threat to Public Services

The growing trend toward privatization and contracting out is a genuine threat to workers in the public sector and an attack on the American system for providing public services for Teamster families and all Americans.

Faced with tight budgets, many government officials and politicians see privatization as a quick fix. But in the long run, privatization often ends up costing taxpayers more, while putting private profit ahead of the public interest.

It is important that all Teamsters understand this issue and are prepared to fight back against privatization.

What is Privatization?

Privatization means allowing profit-making corporations to take over the duties that have traditionally been performed by public agencies. Usually, this means that government will contract out work to private companies that previously was performed by public employees.

Why the Growing Trend Toward Privatization?

Over the last two decades, managers in the public sector have faced a very real problem: the public expects quality services, but tax revenues are often inadequate because corporations and the rich don’t pay their fair share. Anti-government politicians and corporate special interests don’t streamline government and reform the tax code to raise revenue fairly. They argue that the solution is to turn over government functions to profit-making companies.

Many officials and citizens innocently fall for this scheme because it is packaged as a quick fix for government problems. They are promised that contracting out will:

  • Cut costs.

  • Provide a workforce with specialized skills.

  • Give financial incentives for managers to work harder.

In reality, privatization rarely meets those goals. In fact, the real reasons for privatization often include the following:

  • As a payoff to friends or political allies.

  • To avoid paying workers’ benefits.

  • As a way to keep workers from having union protection.

  • As a way to intimidate unions during bargaining.

  • Because of political pressure from powerful corporations.

Myths and Realities About Privatization

Teamsters must be prepared to counter the arguments of privatization advocates who want to contract out public services. This list of Myths and Realities should help.

Myth: Contracting out saves money.

Reality: Nearly two decades of experience now clearly shows that contracting out rarely saves money in the long run.

Privatization may show short-run savings. This is because private contractors will purposely under-estimate costs at the beginning in order to get a contract. This is called "low-balling" or "buying in." But once government work is turned over to a private business, the drive to produce profits takes over and contract costs rise. Contractors will pad later contracts with unnecessary expenses. After a while, government loses the ability to perform the work and becomes dependent on the contractor, no matter what the cost.

There are also lots of hidden costs. Drafting, negotiating, and monitoring compliance with contracts can require a whole new layer of government bureaucracy. Because privatization usually leads to layoffs and loss of pay and benefits, taxpayers will face the hidden burdens of unemployment compensation and public assistance programs. As good paying government jobs are replaced with low paying contract jobs, the government will collect fewer dollars in tax revenue. Private sector workers suffer because laid-off public workers can no longer afford the goods or services they produce.

Myth: Private businesses are more efficient that the government.

Reality: Although many people believe this, no one has ever demonstrated that it is true. But examples of inefficiency on the part of companies that contract with governments are numerous. Private Pentagon contractors are legendary for their inefficiency, like charging thousands of dollars for a hammer or a toilet seat. Less famous examples exist at the state and local levels.

Quality usually decreases under privatization because private managers cut corners to reduce costs. They tend to hire inexperienced, low-paid workers who do not get training on how to do the job right. Also, the low pay, poor working conditions, and lack of union representation often cause high turnover of employees.

Private firms often increase their profits by providing good service only to certain areas. For example, suppose New York City’s ambulance service was privatized. Firms would rush to provide services to highly profitable areas, such as Manhattan. But areas where working people live would get less priority.

Myth: Competition keeps private service providers accountable.

Reality: Competition only works when there are many firms competing to provide a product or service. But under most privatization schemes, competition ends once the work is contracted out. After the contract is signed, one firm becomes a monopoly because it gets all the equipment, experience and training. Once a company knows that the government will not contract with another firm, it can jack up its rates or cut quality.

When governments subcontract work, other accountability problems are created. It is often not clear who is responsible to taxpayer – the government agency or the contractor. Contractors can pass the buck for shoddy work, claiming that it is the government’s fault. Citizens often do not know who is supposed to receive complaints or fix problems.

Contracting out creates many opportunities for corruption. Contracts to provide government services may be given to political cronies or campaign contributors. Competition for initial contracts often leads to kickbacks, bribery, and collusive bidding.

Myth: Private contractors are able to use a more flexible, specialized workforce, thus saving a lot in overhead costs.

Reality: Privatization undermines the workplace protections and standards that Teamster members have fought hard to win. When work is taken away from union members, it is often given to inexperienced, less-skilled workers. Costs may be cut in the short run, but over time quality will decline.

In practice, flexibility is often harmed by the contracting out process. It is impossible to design bid specifications and contracts that foresee all future needs. So governments lose their ability to respond to new situations.

Plan Now to Fight Privatization

The best way to fight privatization and contracting out is to be prepared before it starts by educating members about privatization issues and involving them in a constant campaign to promote public services. An educated and involved membership will be ready to fight any move toward privatization through:

  • Community Alliances: Reach out to community, consumer, religious, and other groups in an ongoing effort to promote public services and maintain alliances with those who use the services. These groups can be Teamster allies in a fight about privatization if it is proposed.

  • Political Action: Legislative efforts involving Teamster members and other groups can defeat bills that promote privatization.

  • Contract Language: Collective bargaining, where it exists, can be used to gain contract protections against contracting out.

  • Legal Strategies: Privatization may conflict with civil service laws or violate an employer’s duty to bargain.

The International can help locals develop ongoing programs to fight this threat to workers and to public services. Watch for upcoming materials from the International Union on political action, internal organizing, community campaigns, and other topics to help public employees build membership support and fight privatization.

For more information, contact the International Union Public Services Division at 202-624-8149.

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