Time to De-Privatize

Last week, I published a piece on a private company called ID.me, which has over a billion dollars in contracts with federal and state agencies to provide secure identification when citizens do digital transactions with government agencies. Because this company is a dot-me rather than a dot-com, several readers wrote me to say that they had just assumed it was part of the government. Over 150 million Americans now have ID.me accounts, which are required to access several government agencies.

ID.me has a policy of never selling data. But that’s not the problem. The problem is that allowing citizens to access government agencies is a necessary government function. As I wrote, contracting out that function deprives the government of core competence, and the dependence on for-profit vendors grows over time.

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ID.me is part of a much more pervasive blight, which needs to be reversed. Ever since Ronald Reagan came in with an explicit agenda to privatize as much of government as possible, the hollowing out has only grown. Drawing on a Heritage Foundation report called Mandate for Leadership (the ancestor of Project 2025), Reagan’s administration succeeded in privatizing Conrail, a federally owned freight rail system, but failed to privatize the passenger rail equivalent, Amtrak. Via the Office of Management and Budget’s Circular A-76, government was required to contract out wherever possible, and numerous internal government support services—such as janitorial work, data processing, vehicle maintenance, and food services—were contracted out to private entities.

The problem is not just that privatization is often inefficient because it adds a nontransparent layer of profiteering on top of government functions. The problem is that government loses basic capacity. This, of course, was an explicit goal of the right.

If we do a taxonomy of different kinds of privatization, one kind is cases such as ID.me where there is a for-profit intermediary between citizens and their government, or where private companies piggyback on government to offer privileged access.

An example is a company called CLEAR, which allows you to jump the queue at airport security if you sign up and pay them $219 a year. If you watch what happens at airports, travelers with CLEAR credentials are escorted through security by TSA personnel who are government employees—a public subsidy to a private vendor. There is a perfectly good public-sector alternative to CLEAR called TSA PreCheck, which allows you to pay $75 to $88 for five years to be precleared and get in the faster line.

Other categories of privatization include:

• Vouchers. School vouchers divert money from public schools. They were advertised as expanding options for the poor, but in many states, such as Texas, they subsidize middle-class and well-to-do parents to send their kids to private schools, while starving public ones. Since all states get federal education funding, federal policy could bar aid to states with voucher programs.

• Contracts. Over the past several decades, different levels of government have contracted out basic public services. This is often far less efficient. The main cost savings occur because the private vendor often pays the workers less than the civil service counterpart. Government has contracted out prisons, has hired temp agencies to fill civil service vacancies, has privatized much of the VA, and a good deal more.

• Payment intermediaries. In the case of Medicare, government uses private insurance companies to handle payments to providers. This is more costly than having government do it directly. Separately, the IRS has in the past hired private collection agencies that cost more than they recover. Hiring more in-house staff to audit and collect taxes owed, as the Biden administration did through the Inflation Reduction Act, has an enormous return on investment.

• Corrupt windfall scams. Chicago privatized its parking meters in 2008, giving a consortium led by Morgan Stanley a 75-year lease. The administration of Mayor Richard M. Daley got a payment of $1.15 billion up front and Chicagoans will pay an extra several billion over the life of the deal, but the city will get about a billion less. By 2025, the investors had already collected double what they paid the city for the deal. Cities get lots of federal money. Federal regulations could make deals like this illegal.

• Services that government can do more efficiently. Several basic public services such as electricity and water and bus service are delivered in some places by private entities and in other places by public ones. Studies repeatedly show that public power is cheaper to consumers and more environmentally sensitive than private power. FDR called this “yardstick competition.” Government should be acting to expand public power.

• Health care and drugs. Private health insurance is a costly mess. Medicare is cheaper, fairer, and more efficient. Universal Medicare would be still more efficient. Prescription drugs, likewise, are substantially subsidized by public research dollars, while drug companies keep gouging consumers. Many basic drugs could be produced and sold at cost by a public entity.

For an encyclopedic look at privatization, its variants and costs, the best group to consult is In the Public Interest. The group’s longtime executive director, the indefatigable Donald Cohen, published a compendium in 2021 titled The Privatization of Everything.

There has been a lot of talk in progressive circles about the most important things for a president and Congress to do if a Democrat is elected in 2028. In addition to reversing the damage to government done by the Trump administration, we need a reversal of longer-term privatization.

In the executive branch, there is a little-known agency that is part of the Office of Management and Budget called OIRA, which stands for the Office of Information and Regulatory Affairs. OIRA was created late in the Reagan administration to review all proposed government regulations and promote deregulation. Under President Biden, this role was reversed and the office was repurposed to restore the case for health, safety, and environmental regulation. Under a new Democratic administration, OIRA could review privatization of all kinds and devise measures for promoting insourcing.

In Congress, a new select committee on de-privatization could take stock of all of the various cases of privatization and their direct and indirect costs. The Biden administration began insourcing reforms by ordering the end of contracts for private federal prisons.

This agenda may sound obscure and secondary compared to the more urgent needs to restore government. But in Britain, the new Labour prime minister, Andy Burnham, has made reversing decades of privatization the centerpiece of his program. That includes bringing back rail and bus service to public ownership, expanding public energy, as well as ending privatized water and sewer services, and restoring underfunded public entities such as the National Health Service.

These measures not only improve public services, but they have an important subtext: Public is usually better, as well as fairer.