How privatization takes a bite out of costs and delivers better goods and services
Amtrak, the government-run railroad passenger service, sells hamburgers to its customers for $9.50 each. That’s an expensive hamburger! But even at such a price, Amtrak loses money on the deal. Hardest of all to swallow, taxpayers end up paying $16 for every burger Amtrak serves.
Over the past decade, Amtrak’s food service department alone has lost more than $800 million. The loss is primarily due to labor costs, but employee theft and waste are important factors, too. How can the company afford to squander hundreds of millions of dollars by serving food? Well, it can’t, which is why the American taxpayer is left to pick up the tab.
Amtrak-scale inefficiency and waste could not survive in the private sector. In the private sector, businesses are governed by profit and loss: If they provide a valuable product or service to consumers and use resources wisely, they will make a profit, which allows them to keep operating. If businesses are not providing a valuable product or service and are wasting resources, then they will take a loss, and if they keep taking losses, they will eventually cease to exist.
“ But there’s a better way to provide products and services: privatization ”
Of course, government-run businesses don’t face these constraints. Take the Post Office, for example. The U.S. Postal Service is losing $57 million every day—and a total of more than $11 billion so far this year. Yet even with these staggering losses, the USPS is able to function. How? Because of taxpayer support.
But there’s a better way to provide products and services that people want without losing money or wasting resources: privatization. Turning government services over to the private sector can improve quality and cut costs—for everything from a coffee shop to an entire city.
For years, the federal government operated a small coffee shop called “Cups” within one of the Senate office buildings. But the coffee was bad and the customers few, and so it came as little surprise that the enterprise kept losing money.
But in 2001 “Cups” was privatized, with a husband-and-wife team, Kathy and Charlie Chung, taking over the lease. In short order, they turned the coffee shop around. Thanks to their hard work and long hours, the Chungs showed they could run a profitable business where the government could not.
Law of the Jungle
North Carolina is considering privatizing its state-owned zoo. Currently, the zoo only raises about one-third of its operating budget and has to rely on a $10 million annual subsidy. The plan is to turn the zoo over to a private operator who will replace taxpayer dollars with visitor fees, private donations, and other sources of nongovernment funding.
Several other U.S. cities, including Tulsa, Oklahoma, Grand Rapids, Michigan, Santa Ana, California, and Los Angeles are considering similar zoo privatization plans. Faced with the possibility of having to close its zoo completely, the Los Angeles City Council hopes that privatization will save up to $20 million—and the zoo—over the next five years.
Another area in which cities and states are turning to private sector solutions is traffic congestion. Here, California has led the way. Back in 1995, despite the objections of state bureaucrats, a private road company turned the median strip of Highway 91 into two new lanes, instituted higher rush hour tolls, and introduced the world to the efficiencies of “congestion pricing.”
Paris, France, has enjoyed similar success, thanks to the construction of a private toll road and tunnel that speeds traffic underneath a notoriously congested part of the capital. Privatization has delivered a win-win outcome: The operating company gets to make a profit and the toll-paying drivers get to their destinations in 10 minutes instead of 45.
Urbanized and Privatized
The city of Sandy Springs, Georgia, tried something radical in 2005. It incorporated itself, effectively privatizing all government services except for the police department and the fire department.
The results? Sandy Springs has balanced its books—and then some. While many U.S. cities struggle with expensive pension obligations and other unfunded liabilities, Sandy Springs has no long-term liabilities and actually has a $21 million rainy day fund.
Reason TV created this video about the city’s accomplishments:
It is generally agreed that the government has a number of essential roles to play in order to protect our liberties. But beyond these, most functions in the economy are best conducted through private enterprise. The above examples demonstrate the power of privatization—just think of what it could do to the price of an Amtrak hamburger.