Privatization of government is a victory for greedy middlemen and crooks. • Minnesota reformer

If you’re someone who generally cheers on the success of public policy, you may have noticed that Minnesota has had a rough few months.

In June, the state’s most popular applications for the electric bike rebate were submitted delayed due to a website outage; last week, Attorney General Keith Ellison announced he would file charges five people with over $7 million in fraudulent Medicaid billings; all of which occurred during an ongoing Feeding Our Future Testthat revealed surprising shortcomings in oversight of more than $250 million in food assistance grants awarded by the Minnesota Department of Education during the COVID-19 pandemic.

At first glance, these incidents paint a discouraging picture of the competence and integrity of the state. Failed programs and improper payments are a violation of the public trust. They are also a political liability for Democrats and progressives who generally seek to create a more just and equal society through government intervention.

Conservatives are eager to use these incidents to raise doubts about the effectiveness of public programs, but the latest fraud and dysfunction do not illustrate an inherent problem with government operations. On the contrary, the factor connecting all these incidents is that policymakers have delegated public services, such as feeding children and providing health care, to nonprofit organizations and private sector companies, rather than having government agencies perform these tasks directly.

Privatization, as it is called, has played a central role both in Minnesota’s recent public policy failures and in national policy challenges for decades. It is a broad and complex topic that I will introduce in this edition of Tax and Spend and hope to explore in depth over the course of the series.

Since the Reagan administrationPolicymakers increasingly seek to implement programs and achieve desired outcomes through contracts or subsidies with companies. This strategy is emblematic of the neoliberal economic philosophy—dominant in the U.S. for nearly half a century—that private markets are the most effective way to improve social well-being, even in sectors like health care and education that require government funding and are overlooked.

Despite the rhetoric extolling the supposed dominance of private actors, the common outcome of these programs was not public savings or increased efficiency, but loss of democratic control over taxpayers’ money and introducing a profit motive that is toxic to creating broad social benefits.

In their 2021 book The Privatization of Everything, Donald Cohen and Alan Mikaelian cover a wide range of issues irritating cases of privatization. They range from disastrous parking meter contract which cost Chicago billions in lost revenue and effectively gave up the city’s right to design its own streets rulesto the military contracts they have weakened our armed forces and left key decisions regarding national security whims of arms industry directors.

While some of these high-profile examples may be disturbing, perhaps no privatization clown can match the scale and scope of our unique public-private health care system. The United States has highest healthcare spending of any developed country in the world, along with worse health outcomes – including lower life expectancy and higher infant mortality – than in the vast majority of comparable countries.

It is no accident that we are a leader in delegating healthcare management to for-profit corporations.

This intrusion of private actors into public services creates opportunities for waste and fraud that are inherently absent in a government-led system. Consider Minnesota’s universal school lunch program: Unlike payments to providers under Feeding Our Future or Medicaid, school lunch money does not go to private bank accounts but goes directly to school districts, where it is subject to multiple levels of public control. There is simply no way to make money disappear.

On the other hand, privatization not only requires spending additional tax dollars to ensure that public funds reach their intended destination, but it also leaks out unnecessary middlemen and private profits. For example, Feeding Our Future was not simply a food provider but acted as a middleman, funding more than 100 community “facilities” that prepared and served—often, it turns out, meals that often didn’t exist. It’s the kind of complex structure you’d expect in a multi-level marketing program, not a simple public program.

In addition to waste and potential fraud, continued reliance on private providers harms society in a third way: by destroying the infrastructure and public sector capacity that we need to achieve important social outcomes.

Here is a quote from Tribune of Stars Editorial Team commenting on Feeding Our Future: “It remains important for state agencies to work with community partners to allocate federal and state funds because the state does not have the capacity to provide abundant funding for social services.”

It’s worth reflecting on this quote. The editorial board takes it for granted that the state does not have the ability to distribute food to people in desperate need. This is not true – Minnesota has tens of thousands of schools, libraries, parks and community centers that can act as distribution centers – and this is extremely problematic. To the extent that a state may struggle to deliver food to residents in need, this is a huge burden, just as a lack of public health infrastructure has greatly complicated the delivery of health care and vaccines during a global pandemic.

But it gets worse. The editorial board continues: “Commissioner Willie Jett, who will lead MDE in 2023, told lawmakers the department would implement the (legislative) recommendations and that it has already strengthened its oversight, begun training employees on fraud, concluded an agreement with a company conducting financial reviews of food programs and added an inspector general to investigate allegations of fraud.” (emphasis added).

We have not only privatized the distribution of public funds, but now privatization of supervision privatization.

While this is comical, it is not an anomaly. In their book, Cohen and Mikaelian discuss the growing Medicaid audit industry that emerged as a result of frauds that arose in the early days of Medicaid privatization. This is simply no way to run a country.

The first step to untangling this mess must be a proactive, public campaign to ensure our taxes go where they are intended. This will increase public trust and, saving wasted money, open up new opportunities to increase investment in legitimate services and suppliers.

But oversight alone is not enough. Our systems will remain leaky as long as they are built on the motive of private profit. The long-term project must include a program of good governance based on transparent public institutions and a strong public workforce.

Reversing decades of privatization is a generational task, but it is necessary if we are to meet the pressing needs of Minnesotans, such as affordable health care, quality public education, and affordable child care. If Minnesota is to stand out as a state that works, we must move beyond the failing status quo.